Buy-Sell Agreements for Closely Held and Family Business Owners has been reviewed by Investment Executive magazine, the premier publication for investment advisers in Canada.  George Hartman provides interesting insights for investment advisers in this review, which states, in part:

A few factors have come together recently to make the timing perfect for financial advisors to read Christopher Mercer’s Buy-Sell Agreements for Closely Held and Family Business Owners: How To Know Your Agreement Will Work Without Triggering It. This is a book that fully explores the intricacies of buy/sell agreements and the potential dangers buried beneath the legalese in most of the agreements currently in place.

Hartman refers to the aging nature of the investment adviser population (recall my recent post on pent up transaction demand) and the economic meltdown of 2008 as important factors.  He notes that investment advisers, like the rest of us, have transactional needs, and that the absence of a good buy-sell agreement can create undesired outcomes.

He goes on to note:

Setting aside the technical details, which are also well addressed in this book, here are some of the compelling observations the author, a highly regarded business valuation expert, makes. They should galvanize anyone with an existing buy/sell agreement, or anyone contemplating one, into action:

• Most existing agreements have not been updated with sufficient regularity to reflect the realities of the business today. People have come and gone from the firm, valuations have changed, interests and energy have waxed and waned, government regulations and tax rules have made original decisions less preferable today.
• Most valuations pit partners against each other in a high-stakes betting game; if the valuation is inappropriately low (as many are because they have not been updated), you’re betting on the other guy leaving the partnership first so you can get a bargain. If it is inappropriately high, you’re betting on yourself being the first one out so you or your family get maximum value.
• Despite the intellectual acceptance that a buy/sell agreement is important, on an emotional level, many partners don’t want to think that anything will actually happen to them that would trigger the agreement’s provisions. After all, the partners had entered into the partnership based on mutual trust, respect and long-term visions. However, as Mercer notes, “bad things happen to good people, too.”

• The agreement must contemplate more than simply what happens to someone’s share of the business in the event of death or disability. A few of the other “D” words to be considered: dishonesty (loss of trust), disillusionment (lack of optimism), disaffection (loss of interest), dissatisfaction (loss of fun), divorce (loss of assets), disqualification (loss of licence), deadlock (lack of agreement) and discredit (low valuation of a partner’s contribution).

Hartman recommends the book to investment advisers as a guide to avoid some of the threats noted above.  I would add to that recommendation that investment advisers can also use the book as a tool to talk to their aging business owner clients.

Read the review, Book Lands at Right Time, in its entirety.  Order Buy-Sell Agreements for Closely Held and Family Business Owners.  Share it with your clients and friends — good things come in threes.  Quantity discounts available.

Thank you George Hartman!