We have talked before about Buy-Sell Agreements and how they are a fundamental part of creating a firm foundation for your business. If you want to know a bit more about buy-sell agreements, check out the episode here.
This week, I have done a lot of thinking about buy-sell agreements and how they impact your business when one of the partners dies.
Please, if you haven’t taken the time to think through what happens to your business when one of the partners passes away, take the time to consider your buy-sell agreement. It is a conversation no one wants to have, but it is a lot easier to have it when it seems like a far-off event than it would be to scramble to determine how it will impact your business when it is too late.
Though these conversations may seem difficult now, they can make the transition in the untimely passing of a partner much easier. Easier on the business. Easier on the surviving partners. Easier on the family of the partner who passed away.
The important part of all of this is that you must plan ahead. If you wait until your partner passes away, it will be too late to keep your business out of it. You will need to deal with how the partners equity is passed through his estate. If, however, you do plan ahead, these unplanned events that cause problems and stress for you personally will not create the same level of problems and stress in your business. And they may simplify a difficult time for the family of your partner.
Don’t forget, if you haven’t come up with a way to fund these events, the buy-sell agreement can cause more harm than good. If you have a liquidation event for a member’s equity in the event of death of a partner, but you can’t pay it, you have not solved your problem. You have created a new one. Now, your business owes money that is being divided in litigation between two separate parties in litigation that you are not a part of. This is not good.
So, make sure you discuss these issues with a life insurance agent or financial planner to make sure you are legally and financially covered.
This is not something to put off. It is essential.