Running a business with a partner is the culmination of shared dreams and aspirations. But what happens if one partner is no longer there due to an untimely event, like death or permanent disability?
Without proper planning, the untimely loss of a business partner can plunge the business, the employees and their families into financial and emotional turmoil. This is where a Buy/Sell insurance policy comes in – a powerful tool to protect the business, its continuity and the well-being of everyone involved.
Here is a case study of John and Laura, co-founders of a growing marketing consultancy, that helps illustrate the stark difference this policy can make.
Case study: John and Laura’s marketing consultancy
John and Laura are business partners and equal shareholders in a growing marketing consultancy. John oversaw operations, while Laura excelled at managing client relations. While they occasionally discussed ‘what if’ scenarios, they never formalised an arrangement for the unexpected.
The following scenarios highlight the different risks and outcomes of not having a plan in place.
Scenario 1: No Buy/Sell policy in place
When John unexpectedly passed away, his 50% share was inherited by his spouse, Sue, who lacked the interest or expertise to run the business. Wanting to secure her family’s future, Sue wanted to sell her inherited shares. However, Laura lacked the funds to buy her out. This left Laura facing three difficult options:
- Take on significant debt to purchase the shares.
- Accept Sue as a co-owner or risk Sue selling to a third party.
Neither option was ideal. Laura grappled with the financial strain that threatened the business’s stability and the emotional fallout of losing her business partner. Sue faced uncertainty about her financial security. The absence of a plan created unnecessary stress for both parties, threatening the legacy that John and Laura had built together.
Scenario 2: Buy/Sell policy in place
The outcome was vastly different with a Buy/Sell insurance policy in place. The policy ensured that Laura received a payout to buy John’s shares at fair market value. This arrangement allowed her to retain full control of the business without financial strain, while Sue received fair compensation to support her family.
The result? Financial stability for both parties, minimal conflict and the preservation of the consultancy’s future. The business thrived and both families could focus on healing and moving forward.
Why a Buy/Sell policy is essential
A Buy/Sell insurance policy offers critical protection for businesses and key stakeholders by:
- Ensuring business stability: The business remains in capable hands, protecting its vision and operations without disruption.
- Providing financial security: Provides fair compensation to the deceased/permanently disabled partner’s family without delays or complications.
- Conflict reduction: Pre-agreed terms eliminate disputes during an already challenging time.
- Protecting personal finances: The surviving partner avoids the burden of taking on debt or exhausting business resources to purchase shares.
The high cost of inaction
Without a Buy/Sell policy, businesses risk significant financial instability, family disputes and potential collapse. For John and Laura, the difference between having a policy and not having one was stark: it determined whether their shared dream endured or unravelled.
Secure your future
Planning for the unexpected is an act of care – for your business, partner, loved ones and employees. A Buy/Sell insurance policy is more than an insurance product; it’s peace of mind, ensuring your shared vision endures no matter what, and if structured properly, maybe a tax-deductible expense to your business. Don’t wait for the ‘what if’ to become reality.
Contact your local William Buck Advisor to protect your business and those who depend on it.
