Keeping your business if your partner dies: Five reasons you need a buy-sell agreement now

Are you in a partnership and have a plan for your business if you or your partner passed away prematurely? If the answer is yes, then that’s great and you are in the minority–less than half of all businesses. If the answer is no, then you are in good company. Read on…

An untimely death is an unpleasant scenario you don’t want to think about let alone plan for, but a succession plan for your business will save you a lot of angst in the long term. Without one, you could lose your business or perhaps even worse, find yourself partners with your partner’s estate or spouse.

That is what happened to me. I was an entrepreneur with a brand new business. 10 months into it, my partner passed away unexpectedly. Like so many other new business owners, there had been a lot of other things to worry about in those first few months that we’d been negligent in setting up a buy-sell agreement. I was in a precarious position because I couldn’t afford to buy his family out. Fortunately for me, my partner’s mother was compassionate enough to give me his half of the business. Without her cooperation, the business would have definitely closed. Let this be a cautionary tale: don’t end up like me!

What is a buy-sell agreement??

A buy-sell agreement provides the legal process for helping the business survive the passing of a partner. There are several ways to fund it, such as out-of-pocket or life insurance. It is not a set it and forget it situation. As your business grows, you will continue to need insurance to match that growth. Buy-sell agreements should be reviewed and updated every three years.

Why do I need a buy-sell agreement for my business?

Buy-sell planning should be a vital part of your business operating plan and your family’s financial security.

Here are five key reasons why:

1. Provide liquidity for your family
2. Allow those who are interested in continuing your business to do so without interference
3. Set the purchase price and terms of payment in advance
4. Improve access to credit
5. Provide greater retirement security

For more information on buy-sell agreements and to get started on planning for your business, please contact me at?[email protected]

Registered Representatives of Equity Services, Inc. do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor. TC140971(0424)1