Business Innovators Radio - Interview with Rhett Chambers, Founder of Rhett Chambers Financial Services Discussing Buy-Sell Agreement Strategies

Episode Date: March 21, 2024

Rhett Chambers, a 2006 graduate of the University of Alabama, embarked on a dynamic career in financial services in 2007 as an agent for AIG. Over the years, he flourished at AIG, serving roles as a producer, advisor, and manager. In 2017, Rhett transitioned to Transamerica, dedicating five successful years before becoming a fully independent agent and advisor in 2020.Representing top carriers in the financial service industry, Rhett specializes in life insurance, term life, disability insurance, annuities, long-term care, and business succession planning. With a clientele spanning Tuscaloosa and beyond, he extends his services across Alabama and neighboring states like Mississippi, Louisiana, Texas, and Georgia.Rhett, a devoted family man with a wife and three children, considers his career’s essence to be helping individuals make informed decisions for a secure financial future. Proudly involved in various industry organizations and his community, he actively coaches children in sports. Rhett has achieved the Million Dollar Roundtable (MDRT) organization’s achievement multiple years for production and quality of customer service work with clients. Balancing his professional pursuits, Rhett finds joy inshore fishing and reading, looking forward to growing in the industry and leveraging new technologies to better serve his clients’ evolving needs.Learn more: https://www.linkedin.com/in/rhett-chambers-5b669758/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-rhett-chambers-founder-of-rhett-chambers-financial-services-discussing-buy-sell-agreement-strategies

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us Ret Chambers, who's the founder of Ret Chambers Financial Services, and we'll be talking about buy-sell agreement strategies. Brett, welcome back to the program. Yes, thank you, Mike. I'm excited to talk about this concept.

And I feel like the business owners who listen will see value in a little bit of education on how to plan for their business's future. I'm excited. You know, and when I hear the word strategies, A, that means there's more than one. And B, it means it's more than just check the box. I have a buy-sell agreement. There's actually a strategy behind this. And like most things in financial services, you probably shouldn't just go out and Google, give me a buy-sell agreement, a document, check, print it off, fill it out, and we're good to go. There's so much that would go into that with the fact that there's a strategy behind it and multiple strategies. So first of all, let's just start off with, give us a brief overview of what a buy-sell agreement is. Absolutely. A buy-sale agreement is a vital tool for businesses, especially partnerships and closely held corporations.

It outlines what happens in the event that an owner leaves the business, if an owner unfortunately were to pass away unexpectedly, or in the event that an owner has an inability to perform their duties at the business moving into the future. This agreement helps ensure a smooth transition of ownership and gives the business the ability to have the confidence and knowing that they can maintain continuity, business continuity moving forward. obviously businesses are constantly trying to improve and constantly trying to grow. It's best that a business have the confidence in knowing that if one of the moving parts relative to the ownership structure were to change overtime, whether it's from an unexpected event or retirement, for example, that the business has a plan. The business has a plan for what the business is going to do moving forward with the current owners and potential future owners.

And attorneys do a great job of helping businesses understand the value of doing a buy-sell agreement, all the different types of buy-sell agreements that are available, and the different options relative to what the buy-sell agreement needs to do for the business. And so, you know, it sounds to me a little bit like this. And correct me if I'm wrong, of course. But what you just laid out for a business sounds like, hey, Mr. and Mrs. Johnson, you should have a will. Because if the unintended death of both of you, you then are telling people how you want your assets distributed and whatever. So isn't it very similar to a will where if something happens, here's what's going to happen with the buy or a sell or here's the path forward? Absolutely. That's a great analogy. Families do estate planning to make sure that everyone is made whole relative to what the parents, for example, want to occur moving into the future. A business is very similar. A business oftentimes is described as sort of like a family. They might not always get along, but at the same time, they are sort of the business. Same as a family.

hide together. Yeah. And with that being said about sell agreement does give some level of peace of mind of knowing, hey, there is structure here, there is a plan. And it removes a lot of the uncertainty, the current uncertainty that a business might have if something were to occur. So that buy sell agreement, while it might not make everyone 100% happy and make them complete, it does give structure that needs to be enforced so that the business can move along and the people can know what to expect as owners moving forward. So I think that's a great analogy.

It's very similar. And I heard you say that there's different types of buy-sell. Talk a little bit about some of the main types that people, businesses should be aware of. Yes. There are really the three that I work with the most often include the work. one-way buy-sell, the cross-purchase buy-sell, and the entity-purchase buy-sell. The attorney or the attorneys make the decision or help the client make the decision what type of buy-sell agreement to have in force or to draw up.

I don't necessarily encourage a client to pick one type of buy-sell over another buy-sell. I really defer that to the attorneys, though. Yeah. I do know a little bit about each type of. plan and the cross-purchase buy-sell usually suits partnerships with a limited number of owners. The cross-purchase is probably the most common by-sell that I work with in the field. While an entity purchase is a little different, it's a little more ideal for larger corporations. And then there's a one-way buy-sell. A one-way buy-sell is not as common, but it is one-one.

which is very commonly used in a situation where there's a sole proprietor, and they're looking at passing along the business to a particular individual moving into the future. Going back a little to the cross-purchase, the cross-purchase by sale is most commonly used because it's very simplistic, and it is usually the one that is, from what I see in the field, most commonly recommended for, business owners that total, for example, too, when there's a partnership. So there's many different types of buy sales and many different ways in which attorneys can create a buy sell. And as I mentioned, sort of early on, that's more of the client in the attorney's conversation than it is mine. My job is to help make sure that there's plenty of

funds to make sure that the buy sell work. You know, and I love how. you drew that line because it's part of your clients and business owners team. You know, you're not trying to overstep and give legal advice. You're not trying to give tax advice. You bring in the attorneys. You bring in their CPAs or ones that you would work with. So that's important to keep in mind. But then like you just said there, you want to make sure that the buy sell fits in with, okay, well, if this happens, we're going to need to access some cash this way or that. And then that kind of ties into with other kind of things that. that need to be in place like what we talked about in our last conversation, key person.

So how does a buy-sell agreement kind of interact with other things like that key person or or some of those things? Because, you know, it's almost like the buy-sell is in place. And then if this happens, it triggers a need for something. And then that's when you step in and say, and that's exactly why we did this. Absolutely. Yes. And so the previous conversation you and I had was pertaining to key person insurance. And the buy-sell agreement acts in a different capacity in the sense that if it is designed to, for example, fund the ability to compensate the surviving family for their part of the ownership that they will otherwise inherit from the death of an owner.

So, for example, if two partners own a business and there's a buy-sell agreement that is in force and it is funded by two different life insurance plans and one of the owners passes away, the insurance, the buy-sell insurance, particularly the buy-sell insurance plan gives the ability of the surviving business owner to use liquidity, use cash, to buy-sell. out the interest of the business from the surviving family. So it, the buy-sell insurance is designed for business continuation while not to go too much in detail from our previous conversation. The key person insurance policy, which could be enforced at the exact same time and could pay at the same time as the buy-sell insurance policy, the key person policy is payable to the business with the intention of protecting the future of the business from a financial standpoint now that they've lost a key employee. Oftentimes, an owner is a key employee. And so the intent of the two different payments from the two different planning tools are totally different.

One is to give the ability of the business to continue in an ownership capacity and to make a surviving family complete, that's the buy-sell, while the key person policy, which could also be enforced on an owner, is intended purely to help the business out to protect it from the loss of income or sales or performance because it lost one of its key people. So there's a substantial difference between the intent of the two different insurances. Yeah. And I'm glad you brought that up because there's never a templated cookie cutter approach. Oh, you're a business. You need a buy sell.

Here's the document. Fill it out. Thank you. It's all based on what they need and that intent. So I'm also certain that you could probably talk for hours on end on seeing, you know, like buy sell agreements that were set up the wrong way. Talk a little bit about just some of the top, you know, mistakes that you see. If there was a buy sale agreement that was set up the wrong way, what would that

mistake look like and how could someone avoid it? Yeah, it's a terrific question and it's very common. So many of the successful businesses are successful because two partners have gotten along. They've done well. Each has their own talents and their own ability. And they've grown the business over the years or decades. And they have not reviewed with their CPA and or their attorney exactly what the value. of the business is now. As a business grows naturally, the value of the business appreciate

sometimes in a dramatic capacity and an occasional review of, hey, you know, here's what the value of the business is today versus what it was six years ago or 12 years ago is really important. And the buy-sell agreement needs to be amended. It needs to be updated. And they can only accomplish set through communication with the CPA and with their attorneys. Along with that need to review the value of the business and review the buy-sale agreement, funding needs to be up to date. So, you know, if the business is growing from a value of, let's say, half a million dollars to many millions of dollars, obviously the life insurance plans that were put in force 12 years ago with the intent of protecting the future of a business that was worth half a million

dollars are going to be extremely inferior relative to what the need is now. So there's constantly a need to look at, hey, are we funding this from a quantity standpoint at the level that we need to fund it at? And you'll see in the field where buy-sell agreements have not been updated by the owners of the business with their communication with their CPA and their attorney. And then even if they have been updated, relative to the current or nearly current value of the business, they haven't been updated on the insurance side. So the funding of the buy sales is sufficient.

And unfortunately, if there's an event that occurs where there's a loss of an owner, money doesn't just, you know, come from nowhere. The insurance plans need to be up to date. And life insurance today has so many. different forms that in the way that it can be put into force that that can be accomplished through simply, you know, adding an additional policy or taking the old policy and redoing it at a higher amount. So those are probably the most common mistakes. Usually there is a buy-sell agreement in force and usually it hasn't been updated if the business has grown dramatically.

So I would say that's probably the most substantial. The most prevalent. And that brings up a question to me hearing that the Bicel and the key person that we've talked about before, how often should they be reviewed for possible update? My recommendation is that we do an annual review on the insurance planning because oftentimes clients will have personal insurance with me. If it's a business, it'll have buy-sell and key person as well. Now, on the visits with the attorney, I would recommend every three or four years minimum, especially if the business is growing in a dramatic capacity, that there would be a review with the attorney.

And obviously, that is going to incur costs for the business because interaction with a professional, with an attorney could generate billable hours. But at the same time, it's a minuscule cost in comparison to an unfortunate loss of a business owner. And whether it be hundreds of thousands of dollars of insufficient planning or higher, that's very difficult to swallow if you're a surviving business owner knowing, hey, look, you know, this family deserves more than what they're going to get. through the funding of the buy-sell, we may be in discussion for alternative methods to make them whole. And I don't think any surviving business owner wants to go down that, you know, to go down that street. It would be best if they had plenty of sufficient insurance planning in force to make sure that the true value of the business is protective so that they can

move forward with running the business in the best way. possible. Yeah, 100%. Well, let's wrap up with this. I always like to say, okay, all of these benefits and strategies and thoughts, let's polish it up into like an example. Can you think of an example of where a well-structured buy-sell agreement really benefit a business that you had worked with before during that transition? Yes. So the one that stands out is a partnership and a construction business, and the two owners had a dramatic discrepancy in age. The owner who was nearly 25 years older was not as active in the business, and he unfortunately had some heart issues, and he passed away unexpectedly,

and there was sufficient funding in force to give his business the ability to actually buy out his interest in the business. And the quickness and the efficiency of the life insurance plans benefits being paid out caused me as the professional to be. just absolutely thrilled that my planning had gone to work and helped the younger business owner not have any concerns about moving forward running the construction business. I believe that he was a little bit nervous when the death occurred of the older business owner. You know, will this really work? Will this provide a quick expedited solving of what is now a problem that I have, and that is that I need to make sure that the continuation of the business occurs without interruption. And when that claim was paid less than two weeks after the death of the business

owner, the thank yous and the appreciation that I've received from not only the younger business owner, but also the family and the spouse of the older business owner was one of the greatest experiences of my career. The gentleman had passed away, but from a financial standpoint, there was a lot of comfort and there was a lot of fluency in moving forward with the business. And I didn't really obviously become involved in all of the legal components of the buy-sell agreement, but from a funding standpoint, I felt like I had done my job and done it well because they were very happy with with acclaim all parties.

And then that gets right back to what you had said in a previous conversation, your, your desire to help and protect. And then when things do come up, that might not be wonderful occurrences, you've got things in place that protected them and that helped them make that transition smoother. I just think that is so spectacular. Red, well, if someone is listening to this wanting to reach out, connect with you, what's the best way that they can do that? Yes, my email is a terrific way to communicate with me.

It is RET. That's R-H-E-T-T-T-T at RET-Chambers.com. Again, R-H-R-H-E-T-T at RET-Chambers.com. And additionally, they can contact me through my direct number at area code 205-737-5-2-2-2-0. Again, that's area code 205-737-5-2-2-0. Brett, once again, thank you so much for coming on. It's been a real pleasure talking with you today. Thank you, Mike.

Yes, and I've appreciated your interest in the subjects that we've been speaking about. And thank you again. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www. www.

influential entrepreneurs radio.com.