YOU SAY YOU HAVE NO PROSPECTIVE BUYER FOR YOUR BUSINESS
FRIENDS WHO COMPETE CAN ALSO COOPERATE AND CREATE A WIN FOR BOTH
Sam and Mike were hunting buddies. They both owned successful Pharmacies in adjoining small towns and had met several years back at a PDS super-conference, an independent pharmacy business conference. Every fall they got together to go bow hunting for deer. Both were accomplished archers. September 19, 2019 was the 4th day of archery season. They were staked out in a ravine looking over the top waiting for the big buck that they had seen in the area three years in a row to make his presence known. This was the year they were to garner their prize. The last couple of seasons for them had been rough. No dead deer. No meat in the freezer. The weather was cool, and they had been holding their position for more than an hour. Scanning the landscape, they were watching a few does walking towards them. They were about 60 yards in front of them.
As the sun started to set, Sam happened to look down the ravine and saw what was the biggest rack he had ever seen. The buck they had been pursuing was grazing in a small patch of grass no more than 40 yards away.
It was quiet with not even the slightest breeze. Sam whispered to Mike to move quietly to his left so that if one of them spooked the deer the other would still be able to get a shot. Every now and then he would stop feeding and moved closer as he cautiously looked around. Sam drew back his bow. He only needed a few more steps. When he felt it was close enough, he let his arrow fly. It was the perfect kill shot. The 16 point buck ran a few yards and collapsed.
On their way home, their newly field dressed trophy safely secured in the back of their pickup truck they reflected on what a great hunting team they had become. But, Mike mentioned in an offhand way that they should work together on their Pharmacy businesses as well. Sam was skeptical but asked what that would mean. Mike was worried that if something happened to him and he could no longer operate his business his family would be devastated by the loss of a lifestyle that had made them the envy of their small town friends. He was aware that as the sole owner of a business he would have special problems when retires, or became disabled, or if he died early. He stood to lose all of the value built up in the business over many years of hard work. Faithful employees would lose their jobs. Vendors, banks and other creditors would want to get paid. Receivables may be difficult to collect. He mentioned that his life insurance agent had told him about something called a One-Way Buy-Sell Agreement. He asked, “Would you consider a joint agreement to buy each other out if something bad happened?”
Thus, began a journey neither had expected that ended in an agreement, not to become working partners, but to be the conduit for guaranteeing the future financial security of each other’s families. They had an attorney draft a simplified type of “buy-sell agreement” often referred to as a “one-way” buy sell agreement. It obligated each of them to sell – and the purchaser to buy – the other’s business interest upon their retirement, death, or disability. After the valuation of their businesses they purchased life insurance on each other’s lives to complete the process and guarantee its implementation.
What a great solution for a problem that every closely held business faces but 80% of them put off until it is too late. The details can sometimes be difficult to work out. I will address them in a later post. For now, congratulations to Sam and Mike.
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