Early in my career I had a client whose husband was a partner in a successful local business and who had recently suffered a stroke. He would never be able to work again. The business was worth about $1,300,000.00 but it relied heavily on the skill of the now disabled partner to thrive.
The wife had approached the other owner to try to get him to buy out their share of the business. However, the healthy partner did not have the funds and had committed what funds he did have to a small property development.
As a result of the stroke the business suffered and after six (6) months it was unable to pay its debts and had accrued a substantial overdraft. Unfortunately for my client her family home had been given as security for the business overdraft.
After nine (9) months the business closed. Not only was my client unable to convert her husband’s share of the business to cash that was desperately needed to provide him with care and to pay the household bills, the bank was now pressuring her to sell the family home or pay $200,000.00 for the guaranteed business debts.
These circumstances were also unfortunate for the healthy business partner who lost the whole of his share in a business which he had helped build over 15 years and was forced to refinance his home to repay his guaranteed business debts.
All of these consequences could have been avoided had the partners sought advice in relation to Business Succession Planning. The number of business owners that I now speak to who are at risk due to not having any Business Succession plan is worrying.