1. BUY SELL TRYING ON THE SOLUTION
[Trying on the solution is a tool for use with a client during an open, during data gathering, even during a close if further explanations are needed.]
Thank you for taking the time today to talk with me about your Business Succession Plan. I call this part of our discussion with you “Trying on the Solution.”
Business succession planning is a vital part of the life of any business. We will explore, together, the possible opportunities to improve your planning in this area.
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TC83653(0315)3

2. A BUSINESS SUCCESSION EVENT WILL HAPPEN
DISABILITY?
RETIREMENT?
DEATH?
YOUR BUSINESS TIMELINE
A business has a life cycle and we measure that life cycle on the business time line. One event that is predictable and we know will occur is a business succession event. The situations that may trigger a business succession include disability, retirement, death, termination of employment, and the divorce or bankruptcy of an owner. And while it is predictable that a business succession event will happen sometime in the life of your business - when it will occur on your business time line is unpredictable.
Because we know that it is likely for a business succession event to happen - that knowledge gives you the opportunity to provide for a smooth transition – no matter what the trigger event is or when it happens. A smooth transition may be established by setting out the terms of the business succession, planning for funding, and maintaining and monitoring the plan through the years.
Before we move on is there anything here that concerns you the most?
TERMINATION?
DIVORCE?
BANKRUPTCY?

3. SOMETHING HAPPENS – WITHOUT A BUY SELL
UNCERTAINTY
Family income
Family benefits
Family receiving fair value for the business
INSTABILITY
Impact on business
Impact with lenders
Business cash flow
Family interference
INSECURITY
Does this keep you up at night?
This is screen two of this packet.
With out a buy sell agreement in place – all that you can be sure of is that there is an uncertain future for your, your family and your business.
Even when everyone has the best of intentions you have to imagine what the situation is actually like when something triggers a business succession crisis – such as the death of you or one of your co-owners. I know it’s hard to put yourself in that moment – but consider all the question marks that exist.
How will the surviving family get the funds they need to live on and that they feel they’re entitled to? They have an uncertain future as to how to replace the income that’s lost, the benefits that are endanger. How do they convert the business interest to cash?
What about the business? There’s great instability at this moment. A key person is gone. What will do that to ongoing business, to new business, to existing loan arrangements? Can the business afford to pay the surviving family the fair value of the business? What is the fair value and how do you get mourning parties to come to the table to agree?
For your family, your business, you and your co-owners – question marks lead to insecurity and is often the leading matter that keeps business owners up at night.
With a buy sell agreement in place you can turn the uncertainty to certainty, the instability to stability and the insecurity to security.

4. WITH A BUY SELL CERTAINTY STABILITY SECURITY Family income
Family benefits
Family receiving fair value for the business
UNCERTAINTY
Family income
Family benefits
Family receiving fair value for the business
INSTABILITY
Impact on business
Impact with lenders
Business cash flow
Family interference
STABILITY
Impact on business
Impact with lenders
Business cash flow
Family interference
INSECURITY
Does this keep you up at night?
SECURITY
Does this keep you up at night?
This is screen two of this packet.
With out a buy sell agreement in place – all that you can be sure of is that there is an uncertain future for your, your family and your business.
Even when everyone has the best of intentions you have to imagine what the situation is actually like when something triggers a business succession crisis – such as the death of you or one of your co-owners. I know it’s hard to put yourself in that moment – but consider all the question marks that exist.
How will the surviving family get the funds they need to live on and that they feel they’re entitled to? They have an uncertain future as to how to replace the income that’s lost, the benefits that are endanger. How do they convert the business interest to cash?
What about the business? There’s great instability at this moment. A key person is gone. What will do that to ongoing business, to new business, to existing loan arrangements? Can the business afford to pay the surviving family the fair value of the business? What is the fair value and how do you get mourning parties to come to the table to agree?
For your family, your business, you and your co-owners – question marks lead to insecurity and is often the leading matter that keeps business owners up at night.
With a buy sell agreement in place you can turn the uncertainty to certainty, the instability to stability and the insecurity to security.

5. COMMON TYPES OF BUSINESS SUCCESSION PLANS
ENTITY PURCHASE
CROSS PURCHASE
OWNER
BUSINESS
OWNER
OWNER
OWNER
HYBRID
Let’s think for a moment about how a buy sell works. I’ve illustrated 3 of the more common types of business succession plans.
In an entity buy out the business will purchase the business interest from the selling owner. An entity purchase, in a corporate setting, may be called a stock redemption arrangement.
In a cross purchase buy out, the co-owners will purchase the business interest from the selling owner.
Finally, there is a hybrid plan – which sometimes goes under other names such as Wait and See. This arrangement is actually a series of options – at least two. The first option is for the business to purchase the business interest. However, if the business does not or cannot make the purchase, the co-owners will then have the purchase option. Sometimes the second purchase option is a required purchase. If not, there will be another purchase option – either the entity purchase or a liquidation.
As I gather additional information from you, it will become clearer which type of business succession arrangement may be most appropriate for you and your business. Ultimately, the decision should be made by you, your accountant, attorney and others on your planning team. Depending on what type of buy sell arrangement is entered into will help us determine how the funding option should be established.
OWNER
OPTION 2
OPTION 1
BUSINESS
OWNER

6. HOW YOU PAY Actual outlay Sales needed to acquire the funding
SAVINGS AND SURPLUS
THIRD PARTY OR
INSTALLMENT LOANS
LIFE INSURANCE
How will you or your co owners pay the bill when it comes due? This is an important opportunity for you to consider the costs, the outlay and how to create the most efficient plan for paying for the buy out – whenever it is triggered. There are three classic funding options.
Savings/Surplus – is both the simplest and hardest. How is that possible? Many people have the best of intentions – if a trigger event is anticipated to happen in 10 years – you may feel that you can put aside, in a consistent fashion, funds to pay for the buy out. Of course, while we know a trigger event is likely to happen somewhere on the business time line – it is impossible to know when. So, savings will be influenced by the number of years you have to the trigger event and will be influenced by your after tax earnings rate. In addition, you would generally maintain the funds in a conservative position and not use those funds for business operations. Ultimately, another important issue is how likely is it for you or the business to actually save funds for this purpose? Finally, what happens if the trigger event happens well before you have saved the money?
Installment or borrowing from a third party. These are often the fall back positions. If you have been saving and didn’t save enough for the buy out, you must look to another party for the funds. To borrow you have to have an outside party loan you the money. The cost will be influenced by the terms of the loan (based on your credit rating following the trigger event), the applicable rate and the years to repay. Rather than looking for an outside lender, you can “borrow” from the departing owner (or the surviving family) – that is, in essence, what an installment buy out does. The purchaser pays the buy out amount to the selling party for a prearranged period of time at a prearranged interest rate.
Finally, life insurance, particularly for a buy out at death, is commonly used. The total outlay will be influenced by the number of years to the trigger event as well as influenced by the age and health of the insured's.
As just noted, not only do you have the question of when the funds are created, you should consider the actual outlay necessary to accomplish the funding plans and the sales needed for you to acquire the funding.
CONSIDER
Actual outlay 
Sales needed to acquire the funding 

7. MOVING AHEAD – THINGS TO CONSIDER
TYPE OF BUY OUT
VALUATION
TRIGGER EVENTS
FUNDING
DISABILITY?
RETIREMENT?
DEATH?
Our next step is to work with you and your other advisors, including your accountant and attorney – to settle on the type of buy out, valuation, trigger events and funding.
YOUR BUSINESS TIMELINE