Business Valuations A Necessary Part Of Buy Sell Agreements

When you are selling your business it is critical to get the correct business valuations. You can either estimate your business value with the help of your accountant or you can pay a professional to do this.

Have you heard of a buy sell agreement? This is an option for those professionals like dentists or doctors who want to have an agreement with a friendly competitor. You want to have a paid for business valuation if you are entering into a buy sell agreement. The bottom line in this case is to protect your family in case you die unexpectedly.

Your family will have to deal with the loss of your business value and anything they have will quickly lose value because of your practice will lose value day by day. But you can enter into a buy sell agreement with a fellow dentist, or friendly competitor as it were. This way when you die your fellow dentist can pay your family the amount your business was valued at the time you entered the buy sell agreement.

Your buy sell agreement will make provision for your friendly competitor to pay your family for the agreed upon value of your business when you form the buy sell agreement. The way he pays your family is through the life insurance benefits he took out on your life. You take an insurance policy out on his life and he has one on your life. The agreement is if either dies the other pays off the family of the deceased for the business value so the surviving family is not hurt by the loss in business value.

You need to consult with an experienced estate planning attorney to set up a life insurance living trust and a buy sell agreement. And you need a trusted life insurance agent to help you choose the best policy for the situation. Your family is not the beneficiary of the life insurance policy your friendly competitor takes out, but they will benefit because they will not suffer for the loss of value of your practice.

Of course you agree to buy his practice from his family with your insurance proceeds if he dies. You both will want to have accurate business valuations done on both your businesses to determine the amount of life insurance you need to take out on the other.

A buy sell agreement will work also with business partners. Let us say you own a business with your partner. If one of you die you might have a new partner you might not want to work with. That is your partner might name his wife as beneficiary of his business interest. If you do not like each other you are in for trouble.

The surviving partner might only be able to buy her out if he takes a loan on the business. Even if he could do this he might not want to. But if partners agree to a buy sell agreement where they take life insurance policies out on each other based on the value of the business then the surviving partner will be able to buy out the heir to the business.

Once again you have to have an experienced estate planning lawyer create the necessary legal documents for this type of buy sell agreement. And in this option you too need to have a correct business valuations to ensure you and your partner have the policy in place to meet your needs if the case arises.

Matthew Kerridge is an expert in forensic accounting. If you want more information about business valuations or are looking for a trusted forensic accoutning company please visit http://www.begbies-traynorgroup.com