Starting up or buying into a business could be the best thing that you ever do, or the worst. And that’s why its important to understand what you are getting yourself into, and to limit your exposure.
And the same applies when its time to sell a business – you want to maximise your returns for all of your blood sweat and tears, as you probably only get one chance at selling a business.
But things can get even more complicated when there are other partners in a business, whether they be family, friends, or just co-investors.
Having a business partner is a bit like having a spouse. There needs to be implicit trust in each other’s skills, honesty, shared values and commitment to making things work.
A well drafted Buy/Sell Agreement can help to take care of many complicating factors when partners decide to move on.
In very simple terms, a Buy/Sell Agreement is a legal agreement, between two or more business owners, which sets out the triggers and mechanics of how to deal with a partner exiting a business, either voluntarily or involuntarily.
And its 100 times easier to agree to all of these different scenarios from the outset, when everyone is getting along well and it will avoid emotional, disgruntled, messy and costly negotiations when the time finally does come to part ways.
A well drafted Buy/Sell Agreement should contemplate the following five issues:
- The retirement of a Partner
- The resignation of a Partner
- The death of a Partner
- The incapacity of a Partner
- While dispute resolution should be addressed in a Shareholders Agreement, a Buy/Sell Agreement should also deal with unresolved disagreements and a general falling out with your partner.
Every business has different needs and risks that need to be managed. And a suitably qualified solicitor can draft an agreement to satisfy your requirements. The team at GNS are not solicitors, but can point you in the direction of solicitors we have worked with previously on these matters.
Besides the above five issues, its important to also consider:
- How will the business be valued
- Who will do the valuation
- How will the money be made available to pay each other out
Everyone agreeing on a valuation methodology at the outset will avoid tense and emotional negotiating at the end.
Equally reaching agreement on who will do the valuation, is it the partners, your accountants at GNS Group, an independent business valuer?
And how do you make sure the money is there to cover the payout. Some life and disability insurance could be part of the solution. Talking to a financial planner from GNS Group is a great starting point for addressing these issues.
Whatever your situation, its always important to ask the question – What happens if…
And if you don’t know What happens if, then you need to book an appointment with GNS Group today.