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Elliott & Joe Miss One BIG Thing

Updated: May 28

Elliott and Joe work well together and have the opportunity to start a new business. They borrow money for a used pickup truck and tools and start a partnership. It has a strong and loyal customer base and is very profitable. Elliott and Joe are success stories, but they overlook something vital in their startup that may destroy the business. At startup, both partners are healthy. No one could have guessed that having arrived at success, one would get fatal stomach cancer. In four months, Elliot is gone. It is now clear that they overlooked something vital when they started their business: a buy/sell agreement. Their partnership agreement has no valuation formula, only that if one partner wanted out, the firm would be liquidated if a price could not be agreed on in ninety days. Three days after Elliot's funeral, his family demands a price. The business is worth much less without Elliot's engagement. The family disagrees. As per the agreement, the business is put on the auction block. Joe is not prepared emotionally or financially. He cannot afford the price they are demanding and feels betrayed and confused. Eighteen years of hard work and success is about to go down the drain at auction. A good buy/sell agreement protects the value of the business and the relationships. It includes a formula for the value of the company and each share. These agreements must be updated annually and communicated to all the stakeholders critical to continuing the business. Effective succession planning through a good buy/sell agreement protects the livelihoods of the employee families, vendors, and stockholders. If the stockholders are alive and want to leave/cash out, then the buy/sell agreement establishes a negotiation starting point. Excellent succession planning also ensures that, as a surviving partner, you will not find yourself in business with your deceased partner's children and grandchildren. Outstanding leadership is planning for when you are no longer in the driver's seat. This is succession planning.

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