Buy-Sell Agreement Business Valuation Services
Exit Strategies provides business valuation and consulting services to businesses and attorneys, to help them create, fix and administer buy-sell agreements (BSA’s).
A good buy-sell agreement provides (a) a means to liquidate shares at a fair and reasonable price upon certain trigger events, (b) a funding plan that is affordable for the company and realizable by the selling shareholder, (c) restrictions on who can own shares, and (d) certainty for tax and retirement planning purposes. Business owners beware! In our experience, there are more faulty BSA’s out there than good ones.
Buy-Sell Agreement Setup Consulting
Exit Strategies will review your BSA draft from valuation, economic and business perspectives. We will identify potential problems and make appropriate suggestions. We can also educate you on the pros and cons of different pricing approaches, and recommend an approach that’s appropriate for your business, circumstances and budget.
Most buy-sell agreements call for one, two or three appraisers to determine value when a trigger event occurs. A multi-appraiser approach is more common with larger companies and joint ventures. Small company BSA’s often name just one appraiser to value the shares at the time of a trigger event. We often recommend doing an initial “benchmark” valuation, which takes mystery and fear out of the valuation process for the shareholders, while their interests are still aligned.
Appraise Upon a Trigger Event
Exit Strategies routinely values company shares upon buy-sell trigger events. We can be selected after a trigger event or named in the BSA.
Some buy-sell agreements call for annual or bi-annual valuations to maintain a current share price. Exit Strategies provides initial valuations and updates.
Price Formula Design
Some buy-sell agreements, particularly with very small businesses, use a price formula. There are pros and cons of using a price formula in a BSA. The advantage of a formula is that it is easy and inexpensive to apply. Clients that choose a formula approach often engage Exit Strategies to perform a benchmark valuation and design a formula that is robust (better tracks future value) and replicable. As part of this process, we typically meet with all shareholders to explain our valuation and formula, answer questions and incorporate any feedback.
Buy-Sell Agreement Review
All buy-sell agreements, regardless of how well-written, lose relevance over time; and should be reviewed, tested and updated now and then. We can review your buy-sell agreement, from business, economic and valuation perspectives, and identify potential problems and recommend solutions. Sometimes this includes testing a buy-sell price formula by performing the prescribed calculations or providing a business valuation for comparison. Performing an independent business valuation as part of a review can provide certainty and avoid surprises and time delays later on.
Shareholders sometimes litigate over poorly designed, ambiguous or outdated buy-sell agreements. When this happens, Exit Strategies can provide expert witness and litigation support services.
Contact an Exit Strategies professional to discuss your buy-sell agreement, confidentially.