I am often surprised when large profitable company’s are faced with serious issues that threaten it’s survival for nothing more than a lack of any type of buy-sell agreement. Most people that create a company with a business partner are so enthusiastic about getting started they completely fail to consider what happens when things go wrong or someone wants to retire? The average small business owner has a difficult time conceptualizing the numerous unexpected scenarios that can create a threat to the existence of the company they have lovely built. When most people think of Buy – Sell agreements they picture a contentious break up of partners similar to the War of the Roses. In actuality, most Buy – Sell agreements will be used when a partner retires for health, lifestyle, or age related reasons. Failure to plan an exit strategy to pay off the exiting partner can create a cash crisis than makes it necessary to sell then entire company at the prejudice of the remaining partners. Additional considerations are untimely death or disability of a partner and financing payment to spouse and or children of the deceased or disabled partner.

A simple Buy-Sell agreement can create a predictable formula for valuation and a extended timeline for payment to exiting partners that softens the financial blow and removes the mystery from the valuation issue. Also, life and or disability insurance is an important tool to provide cash liquidity due to sudden death or disability that would otherwise threaten the existence of the company. A Buy-Sell agreement is as important to a company as an estate plan is to and individual. Many people will often be affected during the transition and it is best to be prepared to insure a positive outcome.