The Buy-Sell Agreement

The Buy-Sell Agreement

Recently I had the wonderful opportunity to speak at the National Association of Convenience Stores annual convention in Atlanta, Georgia. The subject matter that the association had asked me to speak about was whether a convenience store owner should be getting out of the business or growing their business: “Go or Grow”. In part of the presentation I touched on the fact that if you are going to be in business, regardless of what kind of business it is, and you have partners that you will want to incorporate into the partnership in the very beginning a Buy-Sell agreement.

Now having owned many businesses and with the majority of them with partners you find out real quick what a buy-sell agreement is and why you will need one. First of all let me explain for those of you who have not had any experience with a buy-sell agreement what it is.

All partnerships start out with two or more parties deciding that they want to get together to either buy or start a business. Each of the different partners brings something different to the partnership. For example in a three person partnership, one of the partners may bring the money or the ability to get the money with their good credit or banking connections and the other partner may have the operational skills needed to run the business and the third partner may be the one who is going to run the business on a daily basis. Hence we now have a three person partnership with each individual contributing something different to the partnership and with the three of them together they have a viable business.

But what happens if one of the partners dies, gets sick or wants to get out of the partnership? What if one of them gets a divorce and needs to cash out? What is a partner is not contributing their fair and equal share to the business yet is still entitled to a 1/3 of the profits? Or what if the business fails and there are financial losses in the business, how is that addressed?

This is why you need a buy-sell agreement. It is used to address all of the issues I have just mentioned and then some more. Let’s say that one of the partners dies and he is married and his wife now inherits his interest in the business. Perhaps he was the partner that was running the daily operations, but his wife doesn’t know anything about the business and couldn’t run the business if she wanted to. What would you do? If you had a buy-sell agreement it would allow for this issue to be addressed without any hard feelings between the parties.

Too many times when a partnership is started all of the parties are having a love fest and they are not thinking about what could happen. They are only excited about the starting or acquiring of the business and they fail to address the buy-sell part of the agreement. Trust me, bad things can happen without such an agreement.

Please do not think that I am a pessimist, quite the contrary. What I am is a realist and have discovered over the years that things happen and people change and businesses change and you are much better off if you can prepare for these unseen circumstances that will happen eventually.

When operating a business there are many different items that need to be addressed and a buy-sell agreement is only a small part of the operating of a business, but it can be one of the major links when something goes haywire in the business. You may think that you will never need such an agreement, because you are going in business with your best friend or worse yet your relatives. But it will only be a matter of time before you wish you had such an agreement and to bring up the idea of entering into a buy-sell agreement after things have gone haywire is much harder than if you had put one in place when there were no issues to address.

To help give a better idea of what a buy-sell agreement would look like, click onto the link below and you can read a sample agreement that we have used as a template in the past. There are many different versions of a buy-sell agreement and you can add and change anytime to them, but even having a bad one in place is better than not having one at all.

Sample: Buy-Sell Agreement

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