Are you considering a Partnership or are you partial owner in a business without a buy-sell agreement?

Too often, getting a new business up and running and then keeping up with what it takes to operate the business, can cause partners to put a buy-sell agreement on the back burner. Don’t assume there will be time to get formalities in place. Life is unpredictable and a buy-sell agreement may be the most important contingency plan you put off.

GBIA BuySell
A key takeaway from the 2014 FPA/CNBC Small Business Financial Planning Survey found that most business owners are too focused on their businesses to plan for their own financial future. The survey, conducted in conjunction with the Financial Planning Association, sampled 178 financial advisors nationwide that service small-business clients ages 35-70. With less than 30% of clients having a written succession plan, financial planners found developing a retirement plan and exit strategy is the most pressing financial challenge facing small business owners.

With a partnership, the complexities are multiplied. Have you considered:

What will happen if you or one of you partners can no longer contribute to the business?
How will my portion of business ownership be valued?
How will ownership, control and finances of the business be sorted out?
How are my family members equipped to replace me in a role as successor or negotiate a buy-out of my ownership in the business?

If you have come this far, and your business is viable and successful, don’t jeopardize all of your hard work, your investment, your family or your partners by failing to plan ahead.

In its most basic form, a buy-sell agreement can pre-determine terms and an agreed value among partners for the transfer of the business as well as facilitate funding for the purchase of the business if one of the partners becomes disabled or dies.

At Great Bay Insurance Agency, we work with businesses to help them form a succession strategy. Looking at how your business plays a role in funding your retirement is part of the longer term strategy, but quite often, it is imperative to address the more immediate need of establishing a buy-sell agreement. Any type of business can benefit from a buy-sell agreement, including sole proprietorships, partnerships, and closely-held corporations.

We offer many different Life Insurance options to fund these agreements and the structure of your business may shape the arrangement. With up to two partners or owners, a “cross-purchase,” where each owner holds a life insurance policy on the other owner, is most common. With more than two partners or owners, an “entity purchase” might be arranged, where the business or entity holds separate life insurance policies on each of the partners or owners.

There are additional avenues to structure these agreements, but the primary benefits of using life insurance to fund a buy-sell agreement serve to:
- Allow you to play a role in establishing the agreed purchase price of your interest in the business in event of your death. The life insurance policy value can be changed as the business value changes.
- Provide your partners with liquidity from death benefits to buy out your share of the business from your spouse or other estate beneficiary, to minimize losses to the business.
- Generate cash from the purchase to provide for your family or survivors in your absence.
- During the life of the agreement, you may also find your business benefits from a more favorable credit rating with reduced credit risk by having such contingencies in place.

For a personalized evaluation of your business succession strategy and insurance needs for funding a buy-sell agreement, please contact me for a free and confidential consultation. It costs nothing but time well spent to have a conversation. Call me at 603.743.4247 to schedule your appointment today. Let’s Talk!

Your Great Bay Insurance Agent,

Sandy Salava