Why You Should Consider A Buy-Sell Agreement For Your Business

Talking to companies about succession planning is hard. It’s similar to talking to individuals about life insurance, dealing with the end is hardly an enticing topic. However, every business owner, even a sole proprietorship, should have a succession plan in place.

A succession plan determines what will happen to your business, or share of a business, should you die or decide to retire. For many companies a buy-sell agreement is the easiest and best strategy for dealing with the death or retirement of an owner.

What is a buy-sell agreement?
The buy-sell agreement is a tool to help companies prepare for the exit of an owner. The key to success is to have the agreement already in place before the business partner dies or retires.

The biggest benefit of the agreement is it allows the remaining owners to know who will take over the missing partner’s position. Additionally, the agreement can stipulate who may occupy the empty position.

There are many benefits to the plan:

• The remaining owners won’t be left in the dark about the future of the company.
• It can reduce the costs of searching and hiring a successor.
• If the remaining owners want to buy out the ex-partner’s position they will have a better idea about the costs.
• The plan can prevent one family or group from taking majority control of a company.
• There could be tax or probate issues without an agreement in place.

On the face of it, the agreement is simple. However, like any legal agreement, it’s a good idea to speak with experts before entering into one.

How Buy-sell Agreements Are Financed
Obviously, purchasing a partner’s share of a company requires finances. In many cases, companies alleviate the costs by purchasing life insurance policies on the owners.

In the event of the death of a partner, the other owners use the money from the life insurance policy to purchase the partner’s share of the company.

There are, of course, legal caveats to the situation. However, with an efficient succession plan, and proper planning, the entire process usually goes smoothly.

Who needs a buy-sell agreement?
Don’t make the mistake of thinking you don’t need a buy-sell agreement because you are “too small,” or “it’s just myself and one other person”.

The death of a partner can cause significant financial and legal problems if there isn’t a plan.

Even if you are a sole-proprietorship, you might have a key employee interested in taking over the business. Or perhaps, you want your company to continue on after you retire and have a successor in mind.

Regardless of the size of your company, it doesn’t hurt to have a plan that is beneficial for you, your family, your employees and your business partners.

Flagler Financial is a premier insurance brokerage located in Central Florida. We help companies from a variety of industries with their insurance and benefits packages. Additionally, we offer buy-sell agreements funding.

If you are reviewing or developing a succession plan, we encourage you to contact us for a consultation. We’ll look at your situation and give you straight-forward and objective advice.