When considering risk management strategies for your business, one of the most overlooked planning tools revolves around the owners of the company and the cash on hand at the business. I am referring to the need for an owner buyout agreement.

Owners of a business have shares of the company that carries a monetary value that could be significantly larger than your annual revenue. This value depends on many factors. the easiest way to look at this is by asking yourself…What is my business worth if I went to sell today, in one year, and five years? Based on your answer to this question, you can better define what the owner’s heirs might expect in a buyout scenario.

Buyout agreements are legal documents outlining what the owner’s heirs would receive in the event of the owner’s untimely passing. Within this agreement, you will regularly find an outline stating:

Who has the right to purchase the shares in question

Whether the purchase of shares is a requirement of the business

How the value of the shares will be determined

Payment terms around the buyout

Beyond the unexpected death of an owner, these agreements can include provisions outlining options for personal bankruptcy, retirement, divorce, disability, and termination of employment.

Depending on your company’s operations, your business may not want a spouse or children of the owner taking over the company’s operations. It could also be the other way around; the heirs of the late owner may want nothing to do with the business. In either case, a buyout agreement would be necessary to determine how much the company would need to pay the owner’s heirs for their recently inherited shares of the business.

Funding this transaction can happen in two ways in its simplest form. The first option: Through the assets of the business. The second option: Through a life insurance policy purchased by the company on the shareholder’s life.

The short answer is yes, if you do not have enough cash in the business to afford purchasing shares without hurting the financial status of your business. If you have enough cash on hand, then no.

To begin, Rodeo Secure will connect you with a trusted attorney. Your business would work with the attorney to determine the contract provisions and the agreement funding mechanism. If Insurance is the funding mechanism, Rodeo Secure will work with your business and each shareholder to obtain coverage to ensure your agreement is adequately funded. Once in place, Rodeo Secure would work closely with you and your business to ensure that coverage amounts are adequate annually. That’s it!