Buy-sell agreements have been a topic of keen interest of mine for more than 15 years. I first outlined a book on the topic in 1996, and published my first book on the topic, Buy-Sell Agreements: Ticking Time Bombs or Reasonable Resolutions, in 2007. And last year, the sequel, Buy-Sell Agreements for Closely Held and Family Business Owners was published. Along with this publishing activity, I’ve been speaking with increasing regularity on the topic.
The more I get around the country, the more I realize that buy-sell agreements are a thorny problem for many businesses, and that many professionals have difficulty approaching business owners about their buy-sell agreements.
- Some attorneys are concerned to bring up the topic since they may have drafted or been involved with the current agreement at a company.
- Most financial planners know that buy-sell agreements are important, but they may have difficulty in conveying that importance without seeming self-serving, particularly if they sell life insurance.
- Many accountants do not realize the importance of these agreements, and if they do, they don’t know how to address the issue with clients.
- And business appraisers, who are in a position to see buy-sell agreements during valuation engagements, may be reluctant to raise the issue for similar reasons.
Whether because of concern for rocking the boat, perceived self-interest, or lack of understanding, many business advisers continue not to raise the issue of buy-sell agreements. And many, if not most, business owners simply do not give their agreements much, or any, thought.
In a recent post, I talked about what I called the 3 Rs of Buy-Sell Agreements. Most buy-sell agreements are ticking time bombs. It generally takes a team effort to diffuse the bombs, with the team including attorneys, accountants, financial planners and business appraisers.
So for all of us, let’s repeat the 3 Rs:
- Retrieve. Go and get your buy-sell agreement. For many, it has been so long since anyone looked at it that no one knows where it is. So go and get it. Retrieve is the first R.
- Review. Every buy-sell agreement should be reviewed periodically. A buy-sell agreement review should involve several parties, including the shareholders who are parties, the company’s lawyer, the company’s business appraiser, and likely the company’s CPA and maybe the financial planner(s) for the shareholders. The objective is to be sure that your buy-sell agreement will work when it is triggered. Most won’t. Review is the second R.
- Revise. Most buy-sell agreements, following the kind of Review noted above, will need to be revised while the interests of the parties are in alignment, i.e., they can talk, then get the agreement revised. Revise is the third R of buy-sell agreements.
While it can be perceived as self-serving, my first recommendation for all parties who help business owners with their buy-sell agreements, and business owners themselves, is to read Buy-Sell Agreements for Closely Held and Family Business Owners. The book continues my mission of the last 15 or more years and will help you help yourself (if a business owner) or help you help your clients if you are an adviser.
Feel free to pass this short post to anyone who has a buy-sell agreement, to any attorney or accountant who has business clients, to any financial planner who works with business clients, and to any business appraiser. It is time for others to take up the mission to diffuse the ticking time bombs that exist in so many buy-sell agreements.