Deciding when to leave your business can be a daunting task. For many entrepreneurs (and many of you reading this), that day is expected to be many years into the future. After all, deciding when to walk away from something that you’ve built requires 3 levels of readiness:
- Business – is the business as valuable as I want or need it to be?
- Financial – will the sale provide me with enough to fund my future lifestyle and/or other future endeavors?
- Personal – am I emotionally ready for the day when I’m no longer the boss?
And still, leaving your business isn’t always on your own terms; sicknesses, injuries, business break-ups, creditor troubles, and the death of an owner are just some of the ways in which you might leave your business, even if any (or all) of the above 3 are not yet ready.
What’s your first line of defense? Protect yourself and the business; and a great starting point can be a Buy/Sell agreement. Ask yourself:
- Do you want to be in business with your partners spouse or family?
- How will you monetize your share of the business if you are sick or injured? Or pass away?
- What happens when one business partner wants to retire?
If you’re not sure how to answer those questions, then you might want to speak with an attorney to get a Buy/Sell Agreement in place.
What is it?
It’s a legally binding contract among business owners that outlines what happens to an owner's share of the business if they die, become disabled, retire, or choose to leave the company. It comes in a few forms, and your legal and financial team can help you decide which one is best for your company and you:
- Cross-Purchase – remaining owners buy the shares of the departing owner.
- Entity/Stock Redemption – the business buys the shares of the departing owner.
- LLC Cross Purchase – blends elements of the Cross and Entity Purchase methods.
- Unilateral – only applies to 100% sole owners and is typically only applicable in a case where much of the business value is wrapped up in the owner's presence.
All have pro’s and con’s, and if you don’t have any of them, then we’d encourage you to start the process of looking into one. Not sure where to go? Reach out to us…we can help you coordinate the process of getting this started.