Every year in Australia and New Zealand countless businesses are affected significantly by the death or disability of an owner-manager. The business impact of this is usually dramatic from multiple perspectives affecting management, financial arrangements, employees and even business viability itself. This article aims to turn the spotlight on the importance of taking proactive Business Succession action.

MSI members are continually talking to their clients about all aspects of improving their business as well as increasing its value, whilst safeguarding the assets for the various stakeholders.

So take a moment to stop and think about the time and money that you have invested in your business and then ask yourself the question:

"What would happen to all of this if I or my business partner was hit by a bus?"

What would that mean for the other partners or equity holders in the business? ... and their families and estates? And would the business be able to continue with surety and confidence in your absence or your business partner's absence?

There are many more implications for the business, the owners, team members and third parties. Without a properly documented plan and a supporting Buy Sell Agreement or Business Succession Agreement the consequences can be dire with the possibility of huge uncertainty and disruption for the business and the stakeholders. The ongoing health of the business will be impacted and there may be a lack of agreement on the process and payment of a fair and just amount for the affected party's interest.

In short, a documented Business Succession plan incorporating all of the practical and commercial considerations is vital to provide surety for each party. Who wants to leave things up in the air and unresolved in the event of a voluntary or involuntary event occurring without notice?

A Buy Sell Agreement or Business Succession Agreement is a legally binding contract between business owners governing what is to happen upon the death or total permanent disability of an owner and ensuring appropriate insurance is in place as a tax effective method of funding the exit of a business owner. In addition it will confirm what is to happen under a host of voluntary events that could occur within the business or triggered by the equity holders.

A properly drafted Business Succession and Buy Sell Agreement creates certainty and stability in what can be troubling times. It creates certainty, as the continuing owners will have the ability to pay a fair purchase price to the estate or for the benefit of the exiting owner. It creates stability, knowing you will not be inheriting the estate or spouse of the affected party and will placate the concerns of the financiers of the business. It also provides a "road map" and ongoing continuity of the business for the clients, employees and all others who rely on the business.

What action should I take?

If you do not have a documented Business Succession Plan or Buy Sell Agreement in place, it should be at the top of your list for 2012. The drafting of an effective Buy Sell Agreement involves a good working relationship between the client's legal advisors, financial advisors and insurance advisors. This business succession planning process delivers a seamless and cost effective solution and, perhaps most importantly, certainty for all parties.

To take the next step and commence the preparation of a tax effective Buy Sell Agreement as part of your Business Succession plan.

About MSI Global Alliance:

MSI Global Alliance (MSI) is a global association of independent legal and accounting firms in Adelaide, Brisbane, Melbourne, Perth and Sydney. Visit www.msi-anz.net.