So you’ve identified the exit events that can trigger a buyout. Yippee-ki-yay.
Is that the end of the exercise? Of course not. (You knew it wouldn’t be, didn’t you?).
Identifying when a buyout situation might arise is one thing. Having the funds for the payout is quite another.
Chris Mercer sagely points outa number of business factors that could negatively affect your ability to muster the moola when the time for buyout comes:
- Being the minority owner needing to purchase the shares of a departing majority owner.
- Being the owner who needs the business for your livelihood, rather than having independent means to fund the purchase.
- Differences in health and age between the owners can mean that you have to come up with alternative arrangements if one is less insurable, and can also affect the time frame within which you need to come up with the funds
- If the business doesn’t have the funds to make the payout, the owners may need to reach into their pockets to do so.
- Loan agreements (and this was one I hadn’t thought of!) may restrict the use of company funds to make the payout if doing so would harm the creditworthiness of the company.