A Buy-Sell Agreement Can Work—and the Business Can Still Fail

A buy-sell agreement can help settle what happens to ownership. The business still needs the ability to operate, earn money and serve customers after that ownership changes. Those are different problems, and both deserve attention.

You have the agreement. You've worked through it with your attorney and talked about how the purchase would be funded.

That's valuable work. It can help answer difficult questions before a death, disability or another agreed event forces people to answer them under pressure.

But there's another question worth asking:

If the agreement works exactly as intended, what happens inside the business the following Monday?

The ownership changes. The work still has to get done.

Consider a fictional company with two owners.

One owner handles production. The other handles the largest customer relationships, approves unusual pricing and knows which jobs the company should turn down.

They have an agreement addressing what happens if one of them dies. Suppose the agreed purchase goes through, and the surviving owner acquires the departing owner's interest.

The ownership question has been resolved.

But the customer relationships haven't automatically moved to someone else. Neither has the judgment behind the pricing decisions. The production owner may now have full ownership of a company whose most important commercial knowledge is missing.

Employees keep coming to work. Customers keep calling. Decisions keep arriving.

The agreement may have done its job. The company still has a serious problem.

What, exactly, needs to continue?

“Succession planning” can sound as though it covers all of this. Sometimes it covers only one part.

It helps to name the work.

Ownership continuity addresses how ownership and control are resolved when circumstances change. Legal agreements and appropriate funding can be important parts of that work.

Operating continuity concerns whether the essential work keeps happening. Can the company pay people, fulfill orders, make decisions and support customers through the disruption?

Role succession develops the people and capabilities needed to carry particular responsibilities forward. It includes authority, relationships, knowledge and judgment. Naming a replacement doesn't establish that the person can perform the role.

Business transferability concerns how well the business's ability to create value can carry through a particular change. Can the people, systems, relationships and capabilities that produce its cash flow continue under the next arrangement?

These things connect. Completing one doesn't establish that the others are ready.

A signature cannot transfer a decade of judgment

Some knowledge can be documented fairly quickly.

Other capabilities take practice.

A person can read the pricing procedure and still be unable to recognize a job that will consume all its apparent profit. They can receive a customer list without earning the customers' confidence. They can get a new title without having the authority—or the experience—to make the decisions that title requires.

That's why role succession and transferability development often need to happen while the current owner is still available.

The successor needs opportunities to make decisions, explain their reasoning, receive feedback and gradually carry responsibility. The business needs ways to keep working when a particular person is unavailable.

A procedure is useful. Evidence that other people can use it successfully is more useful.

Protect the business—and develop it

Contingency arrangements help prepare for things you hope won't happen.

Ongoing business development helps build and maintain the capabilities you want the company to have.

The agreement may need periodic and event-triggered review. Developing another person's judgment may need attention every week. Neither activity replaces the other.

And this matters even if you have no intention of selling.

An owner may want to reduce their working role while retaining the investment. Another may transfer ownership but continue working for a time. The capabilities required depend on what is changing, who will carry the responsibilities and what support will remain.

Owners exit roles and investments. Businesses transfer—or die.

The purpose of preparation is to give the business a better chance of carrying its value forward and the owner better options for what comes next.

Ask what happens after the agreement works

Alongside reviewing your ownership arrangements with the appropriate specialists, ask:

• Which decisions, relationships and responsibilities still depend on a particular owner?

• Who could carry each of them, and what evidence do we have that they can?

• What authority, information, practice or resources are they still missing?

• Could the business keep generating cash while those responsibilities change hands?

• What needs to be developed now, while there is time to learn and adjust?

You may find that your legal arrangements are doing exactly what they should.

You may also find important business work that nobody has been assigned to do.

If you're unsure what would keep working after an owner leaves, that's a useful place to begin a conversation about the business.

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