| True, a Buy Sell Agreement is an important document | | | | do what they know is right and to tell you about the |
| - one that will insure the continuation of your business | | | | elements of your business and other financial affairs |
| and enable your family to receive the greatest return | | | | you'd never think on your own. For example: |
| possible for your lifetime of work. If there is money | | | | - Is it possible, given the current and projected status |
| behind it. | | | | of your business, your tax bracket, and prevailing |
| If the cash isn't there a Buy Sell Agreement could end | | | | interest rates for you or your partner to set aside |
| up being a disaster, because it could obligate your | | | | enough money in a separate account to complete the |
| family, heirs, partners etc. to attempt the impossible - | | | | agreement? How much money in before tax dollars |
| causing the entire enterprise to collapse along with their | | | | will be needed? How many dollars of additional sales |
| security. | | | | are required to have that much left over? How long |
| Small business accountants are often consulted by the | | | | will it take to fully fund the agreement? Where will the |
| business owner and the other members of the | | | | money come from? What happens if you or your |
| business owner's advisory team when drafting a Buy | | | | partner dies beforehand? |
| Sell Agreement is imminent. They are consulted about | | | | - Borrowing depends upon whether or not somebody |
| business valuation, income, tax planning and similar | | | | believes you or your partner have the assets and |
| matters. | | | | income to repay the debt plus interest. If lenders do not |
| Isn't there something else they should be consulted | | | | have confidence that they will get their money back |
| about? | | | | they won't loan it. If money is tight they may not be |
| If your small business accountant has any experience | | | | able to loan it. What is the additional cash flow required |
| at all yours is not the first But Sell Agreement they've | | | | to repay the loan plus interest? How much money in |
| seen. This is not there first experience with the | | | | total will be necessary to fulfill the terms of the |
| process and they may have lived through the | | | | agreement? Is this possible? Does it make good |
| execution of Buy Sell Agreements their other clients | | | | business sense? |
| have in place at their death or dissolution of their | | | | - The installment sale is really just another way of |
| business. | | | | borrowing the money - except the people you want |
| The question is, should they offer advice whether | | | | the agreement to protect are the ones guaranteeing |
| requested or not, dealing with the most pressing | | | | the loan. What if business is bad? The cash flow |
| question business owners should be asking their | | | | required will be the same unless the family gives them |
| advisors - where will the money come from to fund | | | | a break on the interest - but that doesn't seem right |
| the agreement, how much will it cost, and can we | | | | does it? Most people who come up with the |
| afford it? | | | | installment idea plan to use part of the extra profits |
| You see, unless it is backed up by money, a Buy Sell | | | | from the business to make the payments. Does that |
| Agreement is a worthless piece of paper. Ask your | | | | seem logical - that the business could lose you or your |
| attorney what will happen when their perfectly crafted | | | | partner, make enough money to replace either one of |
| Buy Sell Agreement can not be executed because | | | | you, and at the same time generate enough extra |
| the money isn't there. This is a contract right? Are their | | | | money before taxes to pay the note plus interest? |
| possible repercussions when your family can't live up | | | | Shouldn't you ask your accountant to run the numbers |
| to it's terms? What are they? | | | | for you before you rely on this 19th Century business |
| If you intend for the company to stay in family hands, | | | | transfer approach? |
| perhaps your son or daughter who are already in | | | | - Life insurance. No matter whether you like the idea or |
| place and learning the ropes, the need for a Buy Sell | | | | not, life insurance is the most efficient way to make |
| Agreement is to convert some of the value of the | | | | sure that funds are available exactly when they're |
| company into cash so any other children can receive | | | | needed. The full amount is guaranteed immediately. |
| their inheritance in cash. And it's so your widow will | | | | It's budgetable and payable in advance - while you are |
| have financial security that is not 100% dependent on | | | | still around and in charge. Ask your accountant to do |
| the next generations ability to run the company. | | | | the numbers - compare the options, who's taking the |
| If you intend to sell your interest to a partner or | | | | risks, what's the bottom line etc.? |
| perhaps to an outsider - you want the entire amount in | | | | Make sure your small business accountant invites your |
| cash if possible so all your kids and your widow will | | | | life insurance agent to every meeting where the terms, |
| receive the maximum return on your lifetime of hard | | | | options, and funding of the Buy Sell Agreement are |
| work. | | | | being discussed. There are many types of insurance |
| There are actually only four ways you can fund your | | | | your accountant has no reason to be familiar with. |
| Buy Sell Agreement - to make it worth the paper it is | | | | Your accountant and your life insurance agent may be |
| printed on. | | | | able to collaborate successfully on a strategy that |
| You or your partner, or outsider can begin now to set | | | | combines all four funding approaches to create the |
| the money aside in a special escrow fund untouched | | | | optimum solution for you and your family business. |
| until needed, your estate or your outside buyer can | | | | It is also vital that your spouse is included in these |
| borrow the money at your death to make the cash | | | | discussions and understands what's at stake. Your |
| available for your family, your estate can set up the | | | | spouse and you should determine together what's |
| terms of transfer to be on an installment basis, or you | | | | important and consider together the best way for the |
| can buy life insurance. | | | | agreement to provide the money that will result in the |
| Small business accountants are uniquely positioned to | | | | accomplishment of your objectives. |
| give you accurate insights into which of these four | | | | Remember, the goal is to maximize the value of your |
| options is a real possibility and just how one scenario | | | | business so you and your family receive a fair return |
| will work out for you compared to another. Not asking | | | | on your years spent building the business. |
| your business accountant do run through this exercise | | | | And there is no substitute for cash, delivered to your |
| should not excuse them. | | | | family at the right time in the right amount, in the right |
| You put your faith in your small business accountant to | | | | way, and at the least cost to everyone. |