Common Succession Scenarios
financial checklist for exiting your business (5 tips to ensure paying yourself more)
Buying Out Your Business Partner
Sooner or later even the best business partnerships come to an end, and you and your partners will have to create a partnership buyout agreement. It may come as a result of one partner wanting to take the company in a different direction. There may be philosophical differences. There may be a desire for one to retire. One may have lost his/her passion for the company. There may be economic uncertainty for the future so one is looking at divesting some or all of their interest in the business. One may be going through a divorce or life-altering event. Regardless of the reason for the dissolution of the partnership, you need to be prepared for the potential financial, emotional and physical challenges that may come from if such a situation arises. No one can be certain when these events may transpire but you need to be prepared when such a day may come and how you will deal with it.
A properly thought out partnership buyout agreement will address many of these situations however, insurance can address a solution in the event of a critical illness, disability or death but how can you address if a partner just wants to leave the business and the financial stress that this can cause especially if your price tag to buyout your partner is in the millions of dollars. For many, mortgaging your home or liquidating some of your other hard earned assets is not the preferred route to go.
Hopefully your financial advisor had invested in a permanent life insurance policy that was owned by the corporation many years ago and your policy has accumulated significant value over the years. If so, this money can be leveraged and used as collateral with any financial institution. Depending upon the type of the policy, up to 95% of the cash value can be used to borrow against. Typically you’re only able to leverage 80% of the collateral within your home. This should be an indication how banks feel about the value as an asset represented by permanent life insurance!
Investigating alternative means of capital can save you tremendously financially, but address the significant amount of stress associated with such a situation. There are a number of options to consider but weigh all your options carefully. There are some outside the box solutions that you may not have considered.