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Business Succession Planning

"If your business partner died, became disabled or critically ill, how long would you be willing to do 100% of the work for 50% of the profits?"

(Often called 'Buy-Sell Agreements' or 'Business Wills')


"As a business owner your business not only provides you with income, but you most likely also see it as the asset which will fund your retirement. Protecting this asset should be important to you."

What is Business Succession Planning?

Every business with 2 or more owners should consider what might happen to the business if one of the owners departs the business, whether through death, disablement, traumatic illness, retirement or resignation.

A Business Succession Plan involves the business owners entering into a written agreement to plan what they are to do with their share of the business should one of these trigger events occur. It is just like having a will in place for your business. Insurance cover is the most cost effective way of funding most of these trigger events.

Why does my business need a Succession Plan?

A formal agreement provides for the orderly transition of ownership upon departure of an owner, giving the business every chance of survival and ensuring the departing owner (or their estate) receives true value for their hard earned share of the business.

Without a formal legal agreement the likely outcome of the departure of a business owner is:-

  • The business is forced to sell assets, borrow money or 'wind up' to pay out the departing owner
  • The business may be forced into a working relationship with the spouse or estate of a deceased owner, giving them equal say in the running of the business OR they may contribute little to the business whilst still receiving a share of the profits
  • The business may be forced into a working relationship with a total stranger, if the spouse or estate sell their share to a third party

How do I value my business?

There are a number of methods for valuing a business. These methods should be considered in collaboration with your accountant and solicitor. These methods include:-

  • Current Market Value
  • Agreed Formula - A pre determined formula is used to calculate the business value.
  • Fixed Dollar Value - The business owners agree up front on the value of the business which is reviewed regularly.
  • Independent Valuation - The business owners agree to having an independent professional such as an actuary assess the value of the business upon occurrence of a trigger event.

We are able to assist you in determining the level of cover you require.

Case Study

Brothers Peter, Ian and Miles were equal shareholders in the family printing business their father passed down to them before his death. Each of them was married with young family's. The three men grew the company to the point where it was valued at $6 million. They had previously consulted with an adviser about a succession plan, but "did not get around" to implementing the adviser's recommendations. Unfortunately Ian died of a heart attack in his mid 40's. Peter and Miles had never gotten along with Ian's wife Brenda but now are forced into a situation where Brenda owns and controls one third of their business. After Ian's death Brenda's solicitor suggests that she sells her share in the printing business. Peter and Miles are forced to lay off staff, sell some assets and borrow over $1 million to pay Brenda her share, in the process reducing the value of their own shares in the business.

With some simple planning all of this may have been avoided. Had Peter, Ian and Miles entered into a buy/sell agreement and implemented life insurance cover for $2 million each Brenda would have received the insurance proceeds of $2million whilst Peter and Miles would have split Ian's share in the business and retained complete control of the business.