Partnerships Can Be Tough
The good news is when partnerships work, you have a great opportunity make money and enjoy yourself while doing it, which is the reason you started your own business in the first place, right?
The lukewarm news is when they don’t work, you can dissolve the partnership. Hopefully, the dissolution can be done amicably, or at the very least, fair and agreeable.
The bad news, if you make money, you have to protect the engine that produces that wealth and prosperity.
When I was learning about how to sell disability insurance, the closed-ended question taught to new brokers was “if you had a money making machine in your basement, would you insure it?” That’s how difficult it was to help people envision the need to insure a concept. You are insuring your ability to earn a living that provides for your family and your lifestyle.
If a partnership is working and you’re leveraging each other’s strengths, then the machine is working. A Buy-Sell Agreement is critical to the partnership. This is a legal document that outlines the provisions on how the partnership makes decisions. There are various stages that may occur that must be confronted from a business perspective such as termination, retirement, death and disability.
There are sections of the document that is relatively meaningless without being “funded”. Funding a buy-sell agreement can be accomplished with purchasing insurance. When death or disability occurs, you can leverage the funding mechanism with insurance. Instead of liquidating a bank account or securing a line of credit, insurance can help pay for the value of the shares of the disabled or deceased partner.
In the event of death, you can purchase Life Insurance that will assist with buying the deceased partner’s shares from their heirs so you can continue to the run the business without interference with new partners who may not know anything about the business.
In the event of disability, you can purchase Disability Buyout Insurance that will assist, also, with purchasing the disabled partner’s shares so that you can continue to run the business without paying revenues to the disabled partner if they are no longer contributing to the bottom line.
These are difficult decisions and no one wants to have to think about these worst-case scenarios, however, as you would attempt to be as effective and efficient in your business, you must have solutions that will streamline these difficult decisions. And they happen. The key is understanding that if it happens to you, are you ready to address them.