Quiz: Business Succession

1. Key person risk in a real estate business means:

Having too many employeesThe business cannot function if one critical person (often the owner) is suddenly unavailableA key employee demands a raiseThe property manager quits

Key person risk exists when critical knowledge, relationships, or decision-making authority reside in a single individual. If that person is incapacitated, dies, or leaves, the business may not survive. Succession planning addresses this by documenting processes and identifying successors.

2. Transferable value in a business means the business:

Can be moved to a different stateHas systems, processes, and income streams that function without the current owner's daily involvementUses transferable licensesHas no debt

A business with transferable value can operate (and generate income) under new ownership. This requires documented systems, established vendor relationships, professional management, and income that does not depend on the owner's personal reputation or effort.

3. A buy-sell agreement between business partners establishes:

Who gets the best officePredetermined terms for one partner to buy out the other upon death, disability, or departureWhich partner does more workThe company's marketing strategy

A buy-sell agreement prevents disputes by establishing in advance how a partner's interest will be valued and purchased upon triggering events (death, disability, retirement, divorce). Without one, surviving partners may be forced into business with a deceased partner's heirs.

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