Considerations for Using Buy-Sell Agreements:The Advantages for Owners, Accountants, and Financial Advisors

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The Small Business Administration reports that there are nearly 30 million privately held businesses in the United States, of which nearly 6 million have multiple employees. The owners of many of these privately held businesses are baby boomers (individuals born between 1946 and 1964), who are now in the early stages of a massive transition from working to retirement. As that transition occurs, many small- and medium-sized business enterprises (SME) will be sold or otherwise passed on to the next generation of owners. It is important for a business with multiple owners to have a buy-sell agreement, but the time to create such an agreement is not during an ownership transition, but rather right at the outset, when all of the owners are involved and an orderly transition can be planned for.

This article discusses the advantages and potential pitfalls of buy-sell agreements for SME business owners and provides questions and comments for CPAs, in their roles as financial advisors and business appraisers, to consider when engaged to provide their professional input.

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