Business Succession Agreements

Recently we were approached by two women who had been business associates  of each other for several years. Their profiles were similar in a number of ways. They were both in their 30s, both had about 10 years experience in the recruitment industry, both had been recently divorced and both had also been recently retrenched.

With their new-found freedom, they decided to start up a recruitment company of their own in Sydney and within 12 months, each was pulling in a taxable income in excess of $300, 000 per annum. These ladies were very capable!

It was at that stage that they sought our advice on their business structure and their business succession plans.

A business succession agreement was agreed upon. It would ensure the continuity of the business in the event of the death or disability of either of them. Other exit scenarios were also dealt with in the agreement.

The contract was prepared. Weeks went by and neither had signed  it. “We’ve just opened the Melbourne office. It’s very hectic here. We’ll get back to you shortly”,  we were told.

The opening of the Melbourne office increased their overheads substantially. Then one of them met a man. Soon, they wanted to marry and she wanted to sell her share of the business. Do you think they could agree on the price, the restraint of trade provisions or anything else?

They could not.  The business failed and both proprietors  ended up with nothing , except some litigation against them where creditors who were  short-changed in the liquidation were alleging insolvent trading.

Had they signed the business succession agreement (a.k.a. buy-sell agreement), this story would have had a happy ending.

Buy-sell agreements are a “must have” for any SME.