Simon Says: Have “The Speak” with your online business accomplice

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Simon Says: Have “The Talk” with your business partner

Contributed to EO by Saul Simon, a certified financial planner, registered agent of Lincoln Financial Advisors and founder of the Simon Financial Group. This article is the first of three articles about “The Talk” with your business associates, parents, and adult children.

An important lesson we learned from the pandemic is that we should all expect the unexpected. We also learned that planning the unexpected is not always easy. Yet most of us wish we had done better in at least some aspects of our lives.

Plan for unexpected results

When it comes to business partnerships, it is better to have a plan for unexpected outcomes and not need it than to need a plan for an unexpected event and not have a plan.

Financial planners therefore recommend having “The Talk” with your business partner. It can be a difficult and somewhat sensitive discussion; However, it does have a significant impact that can affect you and your partner, the families of all partners, your employees, and other stakeholders.

A worst case scenario

Imagine this scenario: you and your partner are in your late fifties, sixties, or maybe even seventies. They have been in business together for over 20 years. You have a successful, thriving business and have substantial income and the benefits of a medium-sized business. Everything is going well ― until the disaster strikes: Your business partner suddenly dies. Now everything you built together with your partner is in turmoil. All of a sudden, you are faced with a huge number of details that need to be addressed immediately, not to mention the emotion of losing a cherished friend.

First of all, you have just suffered a personal loss, and so has your partner’s family. The emotional situation and the immediate measures that grieving families must deal with must be considered.

Then the chaos begins for you. First, if you didn’t have a plan, now is the time to have a new, previously unexpected partner in your partner’s marriage and family. You can take ownership of your partner’s business shares and make decisions that you disagree with and that may not be in the best interests of the company. It also puts an additional financial burden on the business as you have to hire someone to replace your partner’s role while you continue to pay your partner’s spouse a salary. In other words, you now have a mess on your hands coupled with legal and financial matters that you didn’t anticipate and were not prepared for.

Unfortunately, this story is not unique and probably happens all too often to business partners. In a multigenerational family business, similar scenarios may include inheritance issues and other tax implications.

If you are in a business with one or more partners, regardless of your age, you should have a plan for a potential business sale, liquidation, takeover, or demise of a partner.

3 essential items that you need to install

How can you protect yourself and your partners from this scenario? There are three essential elements that can help avoid such a crisis:

  • Purchase-sale agreement. This specifies how ownership is transferred in the event of the death, disability or retirement of a partner. The contract provides for the company or the surviving shareholder (s) to acquire the shares of the resigned shareholder.
  • Financed life insurance. In order to have the money to buy a deceased partner’s estate, life insurance is used to fund the purchase of the deceased partner’s shares.
  • Company valuation. In the event that one of the partners no longer wishes to be in the business, a valuation of the business will determine the market value. It must be agreed by all partners for a smooth transition on the basis of the terms of the purchase-sale agreement.

According to Gary Katz, a registered agent for Lincoln Financial Advisors, a buy-sell agreement and its proper funding can achieve several goals:

  • Avoid liquidating the company
  • Facilitating the orderly continuation of business
  • Replace lost business income for the heirs of a deceased owner
  • Establish a purchase price that can determine the estate value of the testator’s shares
  • Prove the firm’s stability to customers and creditors

Regardless of the circumstances, in preparing for a partner’s retirement, business dissolution, or the death of a partner, your company must have a plan in place of agreed actions to be taken in such circumstances. Not only does the plan protect the company’s financial health, it also protects the financial well-being of everyone involved.

I strongly recommend having “the interview” if you are the owner of a closely run business with one or more partners or family members and do not yet have a buy-sell contract or funded insurance policies. sooner rather than later, before something unexpected happens.

There are important conversations between the partners that involve a considerable amount of paperwork. Having an objective financial advisor at the table with your attorney and accountant can make this “conversation” less awkward, more productive, and more beneficial for everyone involved.

I hope you find this information not just food for thought, but fuel to act.

Saul Simon is a registered agent of Lincoln Financial Advisors. CRN-3576464-050421.
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