You started a business. You and your partner work 24/7 to make it a success. All efforts are centered on the sale and delivery of your products or services. No time is left over for your family or yourself much less for working with an attorney to complete yet more paperwork. ‘If it doesn’t make money for my business, don’t waste my time’, you think. And rightfully so. This level of focus is why you are where you are today.
Time passes and your business has grown, beyond your highest expectations. It’s now your most valuable asset. It provides you with a hefty income.
Time has passed for you and your partner, too. There always has been the unlikely possibility of being hit by the proverbial bus. As we grow older, risks to our health increase.
Joe and Jack started an electrical contracting business in 1995. By 2018, it was a $35 million business generating annual paychecks to each of them of over $1 million. Jack was diagnosed with stage 4 cancer and died within a few short months. Joe continued to run the business single-handedly, as best he could.
After Jack’s funeral, his family reached out to Joe to sell him their interest. No buy sell, not even an informal agreement. No key person insurance. No contingency plan. Couple this new responsibility for Joe with running a $35 million business in a highly competitive market while seeking new employees to take on areas Jack handled.
Joe told me he spends more time dealing with this buyout than he does running the business. What should have been a straightforward buyout funded by insurance is a major nightmare.
A buy sell agreement is much more than a piece of paper. It’s a small investment in peace of mind for you, your partner and your families. Are you prepared to have your partner’s spouse or children as your new partners? Can you afford to buy them out?
Keep in mind that your partner’s spouse is highly distraught. Not only is their spouse of many years gone, his/her substantial income stream has ended. Rational thinking may not prevail in your dealings with him or her.
In most instances, a well-thought out plan can be prepared by a corporate attorney for only a few thousand dollars. If you decide to back it with key person insurance, the cost will rise.