Review for Accountants & Financial Planners
April, 2016

Business has boomed! Now what?

Two minute scenarios...

Your clients have a business succession plan in place. Funding is organised via insurance and a Buy Sell agreement has been executed.

Scenario One... Andrea, Jarrod and Dean

Scenario: These clients have had a very successful year and their business has almost doubled in turnover.

What's the issue? The insurance funding they each have in place, in case one of them dies or suffers a TPD, is now not enough to cover the value of the equity.

Solutions: During the annual review process (or earlier) the Adviser can identify the need for extra insurance and organise to have the policies increased.

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Scenario Two... but what about Dean?

Scenario: Unfortunately Dean has been diagnosed with a heart condition in the last couple of months.

What's the issue? It may now be difficult for him to increase his cover. If he dies or suffers a TPD, and his equity is transferred to Andrea and Jarrod, he (or his estate) may not get enough compensation for his equity.

Solutions: The Adviser had organised forward underwriting, so they should all be able to have their policies increased without the need for additional medical examinations.

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Scenario Three... but we decided not to do that

Scenario: The three partners had decided not to take up the forward underwriting option. They had no idea the business would grow so fast.

What's the issue? Dean has a problem again - he may not get extra cover so may not be properly compensated for his equity.

Solutions: The Buy Sell Agreement can include a clause such that if there is a discrepancy between the insurance received and the equity value, the remaining partners must pay the difference, albeit over time.

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More information for clients

Please feel free to forward this insight on Buy Sell Agreements to your clients. Or if they would like to discuss how we can help them please call 03 8621 9000 or email with their details and we will contact them, obligation free.

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