Agree to review buy-sell agreements each year

It is critical for business partners or co-owners to make a plan for what will happen to their business should something happen to one of the partners – whether that means one partner retires or passes away.

Many California partners opt to create a buy-sell agreement. While these agreements can be beneficial for a partnership, it is critical for business partners to reassess this agreement annually, just like any other plan for the future.

Why should you review the agreement each year?

A buy-sell agreement allows business owners to maintain control over:

  1. The transition of ownership and exit plans of each partner in several scenarios
  2. The business finances and interests, so they can remain within the business

However, most partners establish this agreement, and then do not look at it again until they face the circumstances or scenarios outlined in its terms. This rarely serves either partner or the business itself.

That is why it is critical for business partners to sit down and reevaluate the terms of the buy-sell agreement each year so they can:

  • Recalculate the value of the business, as well as each partner’s interests
  • Make sure the buy-out triggers and conditions are still appropriate
  • Update the agreement to match any financial or funding changes

Regularly reviewing and updating this agreement can help make sure it continues to protect the business’s future.

It also allows partners to keep emotions out of their decisions

When it comes to a business partner’s personal investment and interest in the company, it can be easy to let emotions cloud their judgment and decision-making. However, this emotional interference can become a much larger issue in the actual event of a partner’s retirement or death.

Taking precautions to plan and review the buy-sell agreement can help business partners reduce the effect their personal emotions might have on professional business matters.