Buy-Sell Agreements (CONT’D FROM PAGE 30)
Board Converting NEWS INTERNET DIRECTORY
of shares in the event of death or disability. “Very often key person insurance can be taken out for individuals whose contribution to the business is so vital that if something were to happen to them, the operational and earnings ca- pacity of the business would be unduly impacted,” says Brownell. “The policy can be structured to pay sufficient cash to either hire a replacement, offset lost income, or purchase the insured’s stake in the business.” Neither life nor disability insurance will help, though, for trigger events such as retirement, resignation, termination or divorce. In such cases businesses can find themselves searching for alternative funding sources. Perhaps the first solution that comes to mind is an out- side lender. But in many cases that’s less than ideal. “A business that borrows money may end up reducing its fu- ture capital expenditures or cutting back on mergers and acquisitions,” says Harms. “Those alternatives can have adverse consequences for the company down the road.” Purchase of shares by a third party also has its down- sides. “Many family businesses are wary of bringing in non-family shareholders,” says Harms. “Anyone who in- vests money will want to exert their influence to make the company run the way they would like to see it run. That can create a whole host of unintended and potentially negative outcomes.” Yet another solution is seller financing: The company gives the outgoing owner a promissory note for a speci- fied amount to be paid off with interest over a certain num- ber of years. “Such an arrangement can help both parties,” notes Brownell. “The business benefits from a cash flow perspective and the seller avoids receiving one huge check subject to taxation in the year received.” The down- side here is mostly borne by the seller, whose default risk may not be adequately compensated for by the interest received. Finally, the family businesses may decide to retain the outgoing owners as third-party consultants for a given number of years. This can free the business from the need to secure a large amount of cash while providing regular tax deductions for the scheduled payments. The departing executives can continue to assist the business with their managerial input, enjoy a steady cash inflow, and avoid a big tax bill for a large sum received in a single year. Start Early Family businesses should draw up and sign buy-sell agreements long before a trigger event occurs. “It’s much easier to hash out all of the ‘what ifs’ when everybody’s healthy, in good spirits, and the business is going well,” says Brownell. “You do not want to suddenly try to figure out who owns what part of the business, how people will be compensated, and how the business will be valued the morning after a material event occurs.” Such timeliness is especially important when it comes to business valuation, says Harms. “It’s remarkable how
ARC INTERNATIONAL www.ARCInternational .com
ARC International is a world leader in the manufacturing of roller products for flexography. The latest nano-technology laser engraving in our NC and NV manufacturing facilities ensures superior quality and consistency in anilox rollers.
AMERICAN CORRUGATED MACHINE www.acm-corp.com
For a wide variety of new and used equipment on to- day’s market, visit our website at www.acm-corp.com. BAUMER HHS CORPORATION www.baumerhhs.com hhs is a global leader in advanced gluing, camera verifica- tion and quality assurance systems for the packaging indus- try. Zero-defect quality and elevated production speeds are key parameters in the manufacturing of corrugated boxes; hhs systems ensure efficiency and precision. With hhs Xcam Box Monitoring and non-contact flap gluing of corrugated board, hhs offers every option for quality assurance in the production of corrugated boxes with flexo folder gluers. BLOWER APPLICATION COMPANY (BLOAPCO) www.BloApCo.com BloApCo has served the corrugated industry since 1933 with a variety of scrap handling solutions, including Hori- zontal Floor Shredders, Trim Cutters, and Material Handling Fans and Conveying Systems. BloApCo Shredders allow for continuous shredding and pneumatic removal of sheet waste stacks of all sizes, roll slab, cores, and carton scrap.
CIMEX CORP. www.cimexcorp.com
Cimex writes affordable yet powerful CAD/CAM software for the packaging and diemaking industries. We also offer numerous samplemakers, etc., to fit all needs and budgets.
CORRUGATED MACHINERY SPECIALISTS www.cmsretrofits.com
Leading manufacturer and installer of quality retrofits, up- grades and replacement parts for S&S and Prime Flexo Folder Gluers. Specialists in reconditioning of S&S Flexo Folder Gluers, including ink, air and electrical systems.
CORRUGATED REPLACEMENTS, INC. www.corrugatedparts.com
Corrugated Replacements, Inc. is a production powerhouse that manufactures high quality machine parts and replace- ment parts for the corrugated and paperboard converting industries. CRI can redesign, engineer, and manufacture any part while providing a rapid turn-around rate, keeping machines running at their peak performance and limiting down time.
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June 7, 2021
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