John and Brian, partners in a business that had exclusive contracts to import and sell exclusive makes of motor vehicles, a dealership that they had built up over 15 years. The dealership had an extensive recurring client list and a high profile reputation in their city, the benefits of which enabled them to live the high life. Despite running such a high profile and profitable business, they had never taken the time out to consult with professional advisers on the establishment of an Effective Succession Plan, nor key business agreements and insurances.
Unfortunately, Brian’s life long love of rich food and imported beer caught up with him, and died suddenly and unexpectedly of a massive heart attack. Also unfortunately for John, Brian’s widow Jenny, who had never previously taken an interest in the day to day running of the business, thought that it couldn’t be too hard, and demanded to be treated as an equal partner in all decisions, as she was the beneficiary of Brian’s 50% shareholding.
It soon became clear to John that Jenny had no business acumen – clients who had previously purchased numerous vehicles from the dealership began to complain, long term staff were resigning and suppliers were reviewing the exclusiveness of their agreements. The relationship between John and Jenny had deteriorated to the point that the only communication they had involved either party’s lawyers.
What was previously a business that could have been sold for a price that would have funded a retirement, was now virtually worthless. Staff turnover sky rocketed to the point that John had to return to the showroom floor on a full time basis and suppliers cancelled their exclusive agreements resulting in a former staff member starting a new dealership in competition.
Had John and Brian sought professional advice, and implemented strategies including buy/sell agreements and insurance, this situation could have been avoided. Upon Brian’s death, the buy/sell agreement would have resulted in Brian's ownership transfering to Jim. The funding to ensure that Jenny got the value of Brian's business share could have been funded by a life insurance policy.