Wednesday 03/23/2016

Make Sure Your Business Survives

Mike Bigrigg, CPA/ABV suggests a buy/sell agreement to keep your investment from failing:

 

 

When an entrepreneur begins a business venture, there are hundreds of tasks to undertake. Even after the business is up and running, the entrepreneur is often engulfed in the immediate needs of the Company:

  • “How can I increase sales?”
  • “At which demographic should I direct my marketing efforts?”
  • “What is the best way to market and advertise?”
  • “How can I make my product better?”
  • “How can I achieve cost savings?”
  • “What is the best way to finance growth?”

Entrepreneurs often wear many hats, if not all of the hats, in the management of a small business. This overload of responsibility can often lead to business owners overlooking a crucial business detail – the buy/sell agreement. If you are a small business owner with one or more business partners, you must have a buy/sell agreement.

Buy/sell agreements address many unexpected situations that could otherwise derail a business.  Think about it: When you started your business, you had an idea that you were very passionate about; therefore, you very carefully crafted a business plan and very carefully selected your business partners. What if the views of your business partner change and he wants to sell his ownership interest? What if your business partner becomes unable to work? Without a buy/sell agreement, your business partner could sell his business interest to anyone. Even worse, your partner’s ownership interest could be transferred to his spouse or unfamiliar family member. These are not the people with whom you intended to start a business, and these people may not have the same intentions as your original business partners. These unfortunate corporate marriages can kill a small business.

In addition, buy/sell agreements set specific parameters for the Company to buy out an exiting partner, which can save the Company from undue financial hardship. The buy/sell agreement is a working document that requires updating from time to time. Periodic business valuations and adjustments to the terms of the agreement can help save a small business during a triggering event.

If you are a small business owner who would like to discuss your buy/sell agreement, please reach out to the advisors at Corrigan Krause. A buy/sell agreement is a necessity to any small business owner with one or more partners.

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