Business Valuation Blog | Understanding Buying / Selling a Company

When business partners decide to part ways, a fair and accurate valuation of the company is a critical step in the process. Whether a partner is retiring, moving on to another venture, or selling their stake for any other reason, determining the current value of your small business provides a high likelihood of a smooth transition while minimizing the chance for a dispute.

An independent, unbiased appraisal ensures that the partner leaving the company is compensated fairly based on their stake in the business. Without a professional third-party valuation, either the departing or remaining partners may end up at a financial disadvantage, leading to conflicts that could quickly turn into a legal battle.

When partners disagree on the value of the business, this dispute will delay or even derail the buyout process. An objective appraisal from an outside professional mitigates these risks by providing a transparent, supportable analysis along with a narrative report presentation that all parties can agree upon.

If the buyout requires financing, lenders and investors will often require an accurate business valuation before approving any funds. A certified valuation strengthens the case for securing loans or attracting new investors to support the transition.

Business buyouts have significant tax and legal implications. The appraisal will assist in providing compliance with these regulations and avoid legal issues that could arise from improper financial disclosures. The business’s financial health is also at stake should a buyout not go smoothly. By engaging with a qualified and experienced appraiser, the remaining partners can maintain stability and continue operations without financial strain or uncertainty.

A documented valuation will set a precedent for ongoing business activity while providing a reference point and reducing ambiguity for future transactions within the business.

In summary, if you or your partner are considering leaving the company, one of the first steps in the process should be obtaining an independent business valuation. Engaging with a credentialed appraiser will greatly assist with ensuring fairness, preventing disputes, and maintaining business continuity. Seeking professional valuation services can safeguard all parties involved and provide a clear path for a successful transition.

When you started your business, your partner was a vital part of making it a success. But what is the value of that partnership? It may be a question you haven't really considered in the past. But now that they're moving on to another company, another opportunity or to just take it easy, suddenly the cost of buying out a partner is a real concern. A business appraisal can help make the process go much more smoothly. Here's why:

Why is a business appraisal important when buying out a partner?

There are a few aspects you'll need to consider during the appraisal process. The first is whether there are any existing agreements that were made previously on what will happen when a partner leaves the business. If you already have a buy-sell agreement and valuation formula in place, you may be bound to that agreement, provided that it was laid out in a fair manner and agreed to by all parties. Having this type of agreement in place prior to a partner deciding to leave the business can drastically speed up the process while mitigating many disputes over valuation.

What if you don't have one in place? Then you'll need to agree on the value of the partner's share in the business. Unfortunately, when one partner has been more involved in the operation or profitability of the company, that can quickly become a contested operation. At that time, having a business valuation performed can make a huge difference in how quickly the process proceeds for all parties concerned. But why is a business valuation better than sorting it out on your own or with an accountant?

When you work with a certified business appraiser to determine your company's value and the value of the exiting partner's share of the business, the appraiser has no stock in the outcome. This level of independence means that they can calculate the overall value without any bias. The certification process means they know exactly how to calculate that value in a manner that will stand up to strong scrutiny, because the methodologies they apply have been tested in a wide range of situations and found to be fair and equitable.

Beyond that, when it comes to calculating what a partner's portion of the business value should be, it can be an onerous task. Because business appraisers spend their days calculating the value of not one, but many businesses, in a wide range of situations, there are none as well situated to deal with your partnership's concerns. They're able to look at reputation, business activity involvement and similar concerns, while still being able to discuss and defend how the figure was calculated in the first place.

By having a business valuation in place when buying out a partner, you don't need to worry about negotiating back and forth over the cost. You'll have a solid value determined by an independent party. But when you do go through this process, make sure you use a certified business appraiser, as they'll have appropriate methodologies to properly value your partner's share. A business valuation provided by a certified appraiser holds up well to strong scrutiny, especially in legal or financial circles if you need help with a difficult personality or coming up with the money to make it happen.