When you have a family business, there are plenty of decisions to make. In all honesty, your employees rely on you for their well-being. Their wellness is in your hands. So as you make your day-to-day decisions within your business, don’t forget the importance of looking into the biggest “what-if” of all: What if I am no longer here to run the business? At Dunncreek Advisors, we can help you to create a Buy-Sell Agreement within your legacy plan so that if the unthinkable happens, your family or heirs will have an answer to all of the “what-ifs.”
The Functionality of a Buy-Sell Agreement
There are two things that a buy-sell agreement does: (1) It provides a written agreement of who the ownership of your business will transfer to in the event of your death or incapacity to run the business yourself. This document will show the heirs what they will receive for fair value of the owner’s share of the business. (2) It will provide a guideline as to how the ownership will transfer. We have put together three questions for you to determine if you, indeed, need a buy-sell agreement in your legacy plan.
- Do the heirs of the current owners rely on the value of the business for their future needs? Whomever the heir, mom or dad or child, will they need the business to continue living the life they are currently in? Will they be able to make all the monthly payments without the business? We can help you determine an agreement that will specify a transfer price, and give you a method to determine that price. Often, people will use life insurance to provide the funds to buy out the heirs as needed.
- Do you want the business to remain in the family? Most family owned businesses will say yes, and some will go a step further and make it a requirement - completely up to you. If in the agreement, the buy-sell agreement will ensure that ownership interest cannot pass outside the existing owners without their approval.
- Is ownership by outside parties acceptable in certain circumstances? While making your legacy plan and agreement, not everything has to be black and white. The agreement can spell out any specific requirements for new owners and how new owners would be approved by the existing ownership.
When owning your own family business, consider all the “what ifs” of future ownership. A discussion with existing owners and Dunncreek Advisors can be very helpful in determining your need for an agreement. A well thought out buy-sell agreement can prepare you for the most likely (and unlikely) issues that could arise.
If this article has gotten you to start thinking about your own situation, get in touch with my office at firstname.lastname@example.org. I always enjoy meeting with people who have started to figure out their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.