Hello Fellow Investors,
We’ve all seen it – that couple where one partner is lovely and the other is, well … let’s just say “challenging” if we’re being polite.
Now imagine that person suddenly becoming your business partner.
Combine that with the fact that money can bring out the worst in people, and you’ve got one of the biggest risks facing any partnership business.
If you co-own a business – whether with a friend or colleague – and your partner passes away or becomes totally and permanently disabled, you could find yourself running the business with their spouse or children instead. And let’s be honest: if the new “head” of the company doesn’t know what they’re doing, your business could be headed for disaster.
That’s where a Buy-Sell Agreement comes in.
A buy-sell agreement is a legally binding arrangement that ensures that if either partner dies or becomes unable to work, the business pays out an insurance policy to the departing owner’s estate. In return, the remaining partner becomes the sole owner of the business. It’s a smart way to protect both your livelihood and your legacy.
How to Set up a Buy-Sell Agreement
Setting up a buy-sell agreement involves collaboration between three key professionals:
- Accountant – to assess the value of each partner’s share in the business.
- Lawyer – to draft a legally binding contract that reflects the terms and trigger events.
- Financial Planner – to organise the appropriate personal insurance policies to fund the agreement.
Together, these three experts ensure the agreement is fair, enforceable, and financially sound/secure.
It’s important to note that a buy-sell agreement isn’t a “set and forget” document. As your business grows, changes ownership structure, or adjusts its valuation, the agreement should be reviewed annually to ensure it still reflects your current situation and provides adequate protection.
Regular reviews help:
- Keep valuations accurate
- Ensure insurance coverage remains sufficient
- Update terms to reflect new partners or exit strategies
Financial Planner for Business Owners
At Fleming Financial Planning, we specialise in financial planning for business owners. This may mean considering buy-sell agreement insurance, in addition to the usual Total and Permanent Disability (TPD) and life insurance cover. We can guide you through the process and tailor a solution that fits your business structure and goals, while protecting you from risk.
Joshua Napier
(Provisional Financial Planner)