When starting a small business with a partner or multiple partners there are lots of factors to consider. For instance, who will manage certain roles? How will you divide different responsibilities? Even how finances are split is an issue that must be addressed.
This season on Madmen the partners at Sterling Cooper are dealing with a lot of these issues. If you watch the show then you know that they are currently dealing with an issue now where one of the partners wants to leave the firm. Unfortunately, for him to leave, the other partners must “buy him out” Basically, buy his share of the company.
This type of agreement is called a buy-sell agreement, sometimes referred to a as a buyout agreement. These agreements are made between co-owners of a business and govern what steps are to be taken if one of the owners passes away, is forced out of the company, or decides to leave (in the case of Sterling Cooper).
We have talked about business valuation in previous blog posts. Understanding the relationship between business valuation and buy-sell agreements is critical. In an ideal world every company would have a buy-sell agreement in place when it is created, but many times these are put on the backburner or forgotten about altogether. As the company gains value, the owner’s financial risk is raised. Having an accountant that is familiar with business valuation and buy-sell agreements will save everyone money in the long run.
If you have questions or comments about buy-sell agreements or business valuation, please leave a comment below and someone from our team at KLP will be in touch!
