Have you wondered what it would be like if one of your business partners died unexpectedly and their spouse would become your new partner? Have you wondered how you would value the business in these cases? It may be time to review your business buyout agreement, commonly called the buy-sell agreement, to see how the above “triggers” are addressed. Don’t have a buy-sell agreement in place? Then now is the time to consider putting one together.
Because the baby boomer generation is facing retirement, many owners will be faced with decisions regarding business transition than ever before. In addition, there are certain triggers that could occur in a closely held business with two or more owners that would cause angst if there is not a proper agreement in place.
Now may be the time to work with an attorney, CPA or financial advisor on drafting the proper agreements to cover the transition issues mentioned above. Of course, the best time to address transition issues is in the beginning when you are forming the business with your partners.
If you are the sole owner of a business, transitioning when it is time for you to exit also requires preparation. The business has to be prepared for sale so that it shows well, much like selling a house. Financials have to be in order and business processes and customer relationships have to be such that the business can run well and profitably without you being in place. If the business runs well only as long as you are at the helm, it may not be worth as much to someone else. If you are transitioning the business to an interested family member or key employee, then this process may be easier as they have time to work towards ownership. You can help make the transition smooth. But transitioning to an outsider where you wish to cash out and leave is a different story. Structuring the business where the sales, processes and relationships aren’t solely dependent on you as the owner is important and may take time to put into place.
Many business owners will be looking at transitioning their business in the near future due to retirement, or will find themselves in a transition situation because of certain triggers. Preparation and planning are important to make it go as smooth as possible. In the case of a business transition, seek the appropriate professionals to help you.
“Business Tips” was written by Mr. Dave Erickson, Director and Certified Business Advisor, of Angelo State University’s Small Business Development Center. For more information on the topic of this article or the services of the ASU · SBDC, contact him at David.Erickson@angelo.edu.