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Buy-Sell Agreements Insights
Hidden Problems with the Price Formula in Your Buy-Sell Agreement, and Solutions
May 12, 2017 / in Business Valuation, Buy-Sell Agreements, Exit Planning / by Al Statz
It is tempting to select a formula approach to pricing shares when business partners come and go. After all, a formula is easy for everyone to understand, and in theory at least, inexpensive to apply. If you’re satisfied with getting to a price, any price, then congratulations – job done. But the goal is to arrive at a price that is fair to all concerned. This article discusses some of the unforeseen problems with buy-sell …
Twenty Reasons to Know the Value of Your Company
February 22, 2017 / in Business Valuation, Buy-Sell Agreements, Exit Planning / by Al Statz
Private company owners and shareholders seek independent business valuations at various times for various reasons. Here are twenty situations in which you may want to obtain a business valuation: An owner has passed away and a valuation is required to settle the estate per IRS regulations An owner is getting divorced and needs to have the company or their fractional interest valued to settle the marital estate An owner wants to gift shares to his …
Buried in the Corporate Archives – a Valuation Case Study
August 23, 2016 / in Business Strategy, Business Valuation, Buy-Sell Agreements / by Exit Strategies
A lot of our valuation work is done for the purpose of internal share transfers of private businesses, or buy-sell transactions. In doing this work, we often see that owners have overlooked or neglected to keep important documents up to date. One such document is the buy-sell agreement, which articulates important legal, tax, valuation and financing issues that are important to ensuring smooth share transfers and business continuity. We recently evaluated a holding company with a fair …
Pricing Methodologies in Buy-Sell Agreements
April 29, 2015 / in Business Strategy, Business Valuation, Buy-Sell Agreements / by Jim Leonhard
When it comes to valuing a business for tax filings, M&A transactions, ESOP’s and most other purposes, business appraisers are usually free to use all of the methodologies in their arsenal. But, when it comes to Buy-Sell Agreements that govern the sale or exchange of interests among closely-held business owners, many of these agreements specify a fixed amount or formula to price equity interests. Recently our firm analyzed the valuation and funding-related provisions used in thirteen buy-sell …
Funding Your Buy-Sell Transactions
April 22, 2015 / in Business Strategy, Buy-Sell Agreements / by Al Statz
A properly structured Buy-Sell Agreement (BSA) ensures a market for owners’ equity when they leave the business, restricts the transfer of shares to unwanted parties, and lays out a set of rules and processes that mitigate the overall risk of uncertainty when a trigger event occurs. However, without having adequate funding mechanism(s) in place, a well-intentioned buy-sell agreement may not satisfy the shareholders needs when a trigger occurs. In this post I’ll briefly outline the …
How a Covenant not to Compete Affects Value in Buy-Sell Agreements
April 1, 2015 / in Business Strategy, Business Valuation, Buy-Sell Agreements / by Al Statz
When someone sells a privately-held company, the buyer usually insists that the seller sign a covenant not to compete. In fact, in over 20 years of business sales and acquisitions, I have yet to see a purchase agreement without a covenant-not-to-compete (CNTC) provision. Now let’s say that your Company or its shareholders purchase all of a departing 50% shareholder’s interest for fair market value; is it reasonable to expect that the selling shareholder would not …
Your Buy-Sell Agreement: Disaster Waiting to Happen? Needs a Tune Up? Or in Good Shape?
February 25, 2015 / in Business Strategy, Business Valuation, Buy-Sell Agreements / by Bob Altieri
An Ounce of Prevention is Worth a Pound of Cure I can’t tell you how many times I’ve heard from business owners and their spouses that a key person became disabled or died and left an operating closely-held business in turmoil. What, no Buy-Sell Agreement? Ask anyone who has been selling and appraising business for a number of years and they will tell you this sort of thing is common. All businesses with more than one shareholder should have …
Buy-Sell Agreement Categories
February 14, 2015 / in Buy-Sell Agreements / by Jim Leonhard
The three types of Buy-Sell Agreements (BSA) are defined by the relationship between the parties to the agreement, i.e., the individual owners and their business entity. Cross-Purchase Agreements are agreements between and among the owners of a business entity that requires the other owner(s) to purchase the interests of owner who has triggered the BSA. Cross-purchase agreements have common elements, including: Funded by life insurance owned by business owners on the lives of other owners. …
The Dismal D’s of Buy-Sell Agreements
January 28, 2015 / in Business Strategy, Buy-Sell Agreements, Exit Planning / by Al Statz
Well-written Buy-Sell Agreements enable orderly share transfers upon the occurrence of certain events during the life of a business. They also prevent litigation that can quickly create a lose-lose situation for business owners. This article presents a list of 27 trigger events and common issues addressed in buy-sell agreements. For fun each item on the list begins with “D”. Buy-sell issues are unpleasant to think about; which is why owners often put off addressing them …
Your Buy-Sell Agreement – Keep It Current Before It Costs You Money and Grief!
November 26, 2014 / in Buy-Sell Agreements, Exit Planning, Sell a Business / by Exit Strategies
Buy-Sell agreements (BSA’s) are an essential, and often overlooked, element in allowing shareholders to realize the value of their investment in a privately held company. The BSA’s purpose is to a) provide a market for ownership interests, b) establish the price and terms for these interests, c) specify a buy-sell process that is orderly and reasonable, and d) specify financing should a “trigger” event occur. There are several reasons this contract among owners can fail. …
Exit Strategies Group, Inc. is a leading provider of business sales and acquisitions, business valuations, and exit planning services for family owned and closely-held companies since 2002.
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