Create a Successful Transition
How often do your clients exit a business? Like most, it is probably only once. Businesses with more than one owner face unique circumstances that make exit planning even more important. Events outside of scheduled retirement can impact owners to exit an otherwise successful venture. Updated buy-sell agreements are one tool to alleviate risks within the partnership to ensure a smooth transition.
Divorce, a medical emergency and death are some reasons an owner may exit before retirement. Other reasons may be changing regulations, technology or financial duress. A buy-sell agreement will dictate how the equity will be valued, funded and paid out. Partnerships should have a valuation done every three years to remain current. Savings, loans, or insurance can be used to fund the payout. Payouts can be a lump sum or payments over a period of time. Each scenario is negotiable and different.
Write Down Your Plan
A handshake agreement won’t help settle ambiguity. Planning for the worst and hoping for the best applies to partnerships as well. If things don’t work out, the parties have a clear path to resolution even if that means dissolving the relationship. Partners may have a great connection, but you may be negotiating with a spouse, their children, or an estate representative where your personal relationship has little meaning. Written documentation provides the proof of obligations.
Do your clients have an agreement already? Do they have a current valuation or life insurance policy? Have they thought about an exit or succession strategy? If you are not talking to your clients about these issues, someone else is. The Visionary Group can provide advice and support specialized for the CPA profession. Contact us at 800.995.9186 to discuss your transition needs.