Small Business – Planning for the unthinkable
Many individuals put it all on the line in an attempt to set up a successful small business. For many businesses owners the value of their business is their only major financial asset other than their family home. Although the majority would have insurance to protect their family home, it seems that many have not even considered insuring the equity they have in their business.
It is common for loans secured by small businesses to be secured by real estate such as the business owner’s family home. Numerous small business owners are are at risk of losing their family home as well as their business if they die or become disabled.
When preparing a shareholder agreement, business succession as a result of death or disability should be taken into consideration. In preparing a succession plan for the business, the owners should consider:
- Preparing a “business will”
- What should be the agreed formula to establish the value of the business
- How should an partner exiting the business be paid for their share in the business
If your business is a partnership, it may also be important to have a buy-out agreement in place, with an agreed valuation method and funding mechanism. In the event a partner dies or becomes disabled the above could prevent:
- The deceased estate demanding a large payout that would inevitably result in the business needing to be sold;
- Beneficiaries in an estate insisting on being directly involved in the business, although they lack the required skills and experience to do so;
- Remaining shareholders transferring the client base to a new entity, resulting in the business becoming worthless.
If you require any further information in regards to the above, contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.