10.3.1 Options for Divesting
In the event a business owner is no longer able to operate the establishment due to health reasons or even death, or if he/she simply decides to sell the business and to move on, the following options are available as a means of divesting business interest.
- The business can be sold to a willing buyer.
- The business can be liquidated of all assets.
- The business can be passed on to family members.
Regardless of how the disposition of the business is being handled, some of the major questions to explore and answer include the following.
- What are the business owner's priorities? (For example...A high selling price? Ensuring that the business remains in the family? Rewarding a prized employee?...etc.)
- If the business is to be sold, is a willing buyer available?
- Will the business bring a fair market value?
- If the business is liquidated, will its vestiges be significantly devalued?
- If the business is retained by the family, are family members competent to run it?
- Will the business continue to generate sufficient cash flow in order to continue to provide income for the family, or can the sale generate enough revenue to provide for the family?
The most successful business continuation plans are buy-sell agreements funded through life insurance geared toward protecting a company from financial loss caused by the death or the long-term disability of its owner, the income producer of the business, or even of a key employee.
Buy-sell agreements can be drafted only by an attorney.
Generally, there are four ways to fund a buy-sell agreement: (1) Using cash on hand, (2) borrowing the funds, (3) making installment payments, or (4) funding through life insurance proceeds.
