Successful businesses are won off the back of a lot of hard work and vision. In essence the ups and downs of owning and managing a business becomes a personal matter. Your staff become your family, your future is linked to the business’s performance and you are making a meaningful contribution to your country’s economy.
Because you wouldn’t want something so personal to be taken away from you, it makes sense to secure your business’s future in the face of possible bankruptcy, illness or death. An excellent way of protecting the ownership and security of your business is by having a Buy & Sell Agreement in place.
A Buy & Sell Agreement ensures that you as a business owner have a way of ensuring there are exit strategies and ownership succession plans in place. This basically means that you as an owner or shareholder have set agreements outlining all issues relating to ownership of the business.
Here are 5 essential things about Buy & Sell Agreements that you should know:
- Sort it sooner rather than later
Deciding the in’s and out’s of your Buy & Sell Agreement from an early stage is always the best option. This way all the involved parties have a clear understanding from the get-go. Just keep in mind that as your business’s needs evolve, the terms of your Agreement might need some revising as well.
- Keep emotions out of the equation
A Buy & Sell Agreement is a way to ensure a clear and unemotional outcome when it comes to matters of ownership. Focus will be tied into the Agreement rather than the high emotions and individual interests that can occur when ownership issues arise. The company’s future is therefore more secure.
- Know your business’s value
Having a clear picture of your business’s valuation is always worthwhile in a Buy & Sell Agreement. Include a business valuation clause which makes use of an objective business valuation expert to measure your business’s realistic worth. Valuation methods can be determined or agreed upon in terms of a business’s total assets, market value, or income.
- Set the ground rules
Having clear rules in place makes sure that a business’s value is realistically determined, and also outlines who can buy into the business and with what funds. Having clauses that decide which owners have (can have) controlling interest, and that protect other owners from potential death, illness or bankruptcy is vital in Buy & Sell Agreements.
- Be aware of Tax Implications
Because Buy & Sell Agreements are taxed, your Agreement should decide how taxes are paid. One can structure taxes to be paid over time and with as minimal costs. Otherwise you can get caught with avoidable costs when trying to sell your company shares upon retirement.
Contact us on: 021 276 1975
By Mark Weston, Director of Financial Wellness