BUY/SELL BUSINESS AGREEMENTS
Allied Health Services practices such as Physiotherapists, Chiropractors, Osteopaths, Podiatrists, are invariably run with multiple Partners.
In addition, those entering as a Partner in private practice are getting younger so after a few years in practice they have usually developed a substantial amount of their personal wealth in the business. Realising the value locked inside the goodwill of the practice in the event of an untimely death, serious illness or injury should be an essential component of a Partners’ security and in turn the Partnership practice security.
The untimely death, serious illness or injury of a Partner may result in significant financial hardship for that person’s family and the remaining Partners. In a worst case scenario it may result in the outgoing Partner selling their Partnership interest for a substantial undervalue or may even result in the selling or liquidation of the whole practice.
The implementation of an effective practice succession plan that includes an insurance funded Buy/Sell Business Agreement can ameliorate such hardship and minimise the financial plight when a Partner meets with serious illness or death. A Buy/Sell Business Agreement is a document entered into by the Partners which sets out the funding methodology and terms for the disposal of a Partner’s interest in the practice where that person unexpectedly dies, suffers serious injury or illness.
The disposal of that person’s practice interest will usually be to the remaining Partners but, given the unexpected timing of that person’s death or incapacity, those remaining are unlikely to have sufficient capital or cashflow available to acquire the outgoing owner’s Partnership interest. As such, the succession arrangements set up in the Buy/Sell Business Agreement will ensure that:
- the remaining Partners are able to acquire the outgoing Partner’s practice interest; and
- the outgoing Partner or her/his family receive necessary funds from the disposal of that interest.
To facilitate this succession arrangement, the central feature of a funded buy/sell agreement is the availability of insurance proceeds as the purchase price of the relevant Partnership interest. The insurance proceeds are paid, tax-free, to the outgoing Partner or her/his family and the relevant business interest is transferred to the remaining Partners – providing significant tax and cashflow advantages to both the outgoing Partner or her/his family and to the ongoing practice and the remaining Partners.
A customised insurance funded buy/sell agreement is required for each Partnership’s specific requirements to result in 100% financial security for all concerned. If you are in Partnership and have some sort of security and succession arrangement in place it should be reviewed at least every two to three years to ensure the adequacy of the current arrangements. Often the growth of a Practice can quickly make redundant the current arrangements as well as legal and tax laws change so it is prudent to revisit and review regularly for the utmost security of your key financial asset.
Make sure that if you are in Partnership you have a buy/sell agreement funded by insurance. This will be the rock of your business succession plan.
Contact us today to discuss your options.