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One of Higgs' relatives also challenged the document regarding the valuation of the company, saying Westron was worth more than the stated valuation, Casey said.
"The relative's impression was that it was a thriving firm and Higgs was a 50 percent owner. The real story wasn't quite as clear as that," he said.
Any business agreement should be as clear and concise as possible on how the policy is funded and what its intentions are, Casey said.
"Sit down with an attorney and an accountant and go over all the permutations and what the tax results of the transaction are. It may cost more than a couple hundred bucks, but in the end it's worth a lot more," he said.
Well-defined buy-sell agreements are particularly critical for solution providers with business partners. Find an attorney who specializes in buy-sell agreements to review the documents and have separate attorneys for the business and all individuals involved, Casey said.
"The opposing party tried to question who paid the insurance premiums. The company did, but I was the beneficiary. They tried to draw the line that since the company paid the premium, the company should get the stock. We didn't do it that way for tax purposes," he said. "You end up with more attorneys in the mix than you expect. Even though the interests might be aligned, they're not exactly the same interests."
Eventually, a judge ruled in Casey's favor, but another issue was brewing: The insurance company wouldn't pay any funds until the challenge was resolved.
"That can affect banking relationships, it causes questions financially with vendors, and everybody reviews your credit line. There's a lot of dominos in that stack," Casey said.
Distributors and vendors were helpful to Westron during that time regarding credit lines, Casey said. It was the banks with no business relationship with Westron that wouldn't extend credit. "We paid our bills on time and it was business as usual [with the vendors and distributors]," he said.
Buy-sell agreements are included in many business partnerships and typically call for another partner or executive to be the insurance beneficiary, with those funds being used to buy the stock owned by the departed partner, Casey said. The reasoning is to ensure that the departed owner's family doesn't automatically become a voting member of the company. But when those agreements are not regularly reviewed, trouble can arise.
"In our case, we hadn't done an evaluation in 10 years so there was some question of what the company was really worth. Even though it's a cost of doing business, having a firm outside valuate you on a regular basis is key," Casey said.
The cost to evaluate a small company's worth can start at about $3,500 and exceed $10,000, depending on the scope of the evaluation and the reach of the company in question, Casey said.
Westron has had two in the past five years. The first one cost about $5,500 and the second about $3,500 because it used a lot of data from the first evaluation, Casey said.
"That's not a soup-to-nuts audit, but they did a lot of research on similar-type companies in our market. If you have a company with a wider footprint, they'll do comparisons with wider footprints," he said. It's best to have an evaluation done every two or three years, or when there's a change in ownership, Casey said.
"Particularly if you're in a fast-growing or fast-shrinking situation, you want to match up the underlying insurance to accurately reflect what the company is worth," he said.