I was talking with a friend of mine the other day – she had called with a concern about her business. She is a co-owner in a retail store that’s been doing really well. She and her business partner get along and see eye to eye on most things. When they started the business together about 5 years ago they took all the right steps and that included setting up a buy sell agreement. That agreement spelled out what would happen if one of the owners died or terminated employment.
So, what was her concern? Her business partner had recently become ill and was having a hard time coming to work every day. They agreed that they needed to hire a part timer to fill in …now it’s six months later and her business partner isn’t showing signs of improvement.
My friend is being pulled in many directions. She has a strong loyalty to her business partner and his family. She wants to do what’s right. But she is working longer hours. She is moving the part timer to full time status to help cover the workload. There’s been some tension between the partners over continued payments to the disabled partner.
When we talked, I asked her to look at her buy sell agreement to see whether the document spelled out what to do in the event of a disability–and even more particularly, what qualifies as a disability.
My friend was disappointed. She felt that she had created an element of security around her family and business by having a buy sell arrangement in place. But now she realizes that they hadn’t adequately considered what to do in the event one of them became too ill to continue to work, whether on a full time or part time basis. The solution for her now is to spend time with her business partner and talk over the problem. She has the hope that they will find a resolution that is good for both of them–but there’s no guarantee.
What was wrong here boils down to a missing page in the buy sell agreement, the page that details what constitutes a disability and what will happen if you or a co-owner were to become disabled. Sometimes, what’s wrong is half of a missing page, you may have set the general terms of a disability buy-out, but haven’t really considered how to efficiently fund that part of your buy sell.
Do you really need to worry about a disability? A disability may be the result of a sudden or chronic illness. It can be from an accident. The disability may be temporary or permanent. One in eight workers will be disabled for five years or more during their working careers.*
Why take the risk? It’s better to talk this through now when everyone is healthy and in the same position, than waiting for a crisis to happen. Think about how you should fill in the missing page, talk with your co-owners and meet with your advisors. The difference between a false sense of security and actual security is only a conversation and some action steps away.