Six Reasons Business Owners Need A Buy-Sell Agreement
Do you have difficulty approaching businesses where you may have a friend or other contact? If only you had an approach that they cant “shut the door on” as soon as you get started. You need something that really appeals to the business owners financial well-being.
Enter the buy-sell agreement, an absolutely essential part of any business owners planning, regardless of the form of the business. Only with an up-to-date, and funded, buy-sell agreement can an owner of a business interest be assured that:
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a) The surviving owners can take over the deceaseds interest quickly and efficiently, with minimal disruption to the day-to-day operation of the business; and,
b) The family of the deceased will receive fair value for their loved ones interest on a timely basis without the need for drawn-out negotiations and/or litigation.
There are six key reasons for a buy-sell agreement:
1. Retirement. A buy-sell agreement helps assure a comfortable retirement for the business owner. After spending an entire lifetime developing the business, a retiring owner can be assured that his interest will be bought out on agreed-upon terms for fair value. Generally, a retiring owner does not want to stay involved with the business and would like some (legally enforceable) certainty as to how he will be paid for his business interest.
2. Guaranteed market. A buy-sell agreement protects the owners family from both the cost and delay of selling the business and the weak bargaining position of being a non-active surviving spouse. By creating a guaranteed market for the business interest at a predetermined price, the surviving family members are freed from the difficult task of selling a business interest where they have little or no knowledge of the business.
3. Surviving owners. A buy-sell agreement allows the surviving owners to move forward with business activities without the drag of either a “silent partner” or protracted litigation. The last thing the surviving owners want is to have to negotiate with a surviving spouse who wants maximum cash flow, at a time when the business may need to reinvest capital to reassure creditors and suppliers of its ongoing economic viability.