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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).
It is important to agree on procedures for the sale or transfer of shares at the time of the death, disability, retirement or dissociation of a shareholder in a closely-held firm. Good buy-sell agreements provide (a) a means to liquidate shares at a fair price, (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 as many faulty BSA’s out there as there are good ones.
Buy-Sell Agreement Setup
Exit Strategies will review your BSA 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 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 large companies and joint ventures. Small company BSA’s often name just one appraiser. An initial benchmark valuation can take fear and mystery out of the valuation process for the shareholders.
Appraise Upon a Trigger Event
Exit Strategies routinely appraises shares when a BSA is triggered. We can be selected after a trigger event or named in the agreement.
Some buy-sell agreements call for annual or bi-annual valuations to maintain a current share price and help with buy-sell funding and planning. Exit Strategies provides initial valuations and updates.
Price Formula Design
Some buy-sell agreements, particularly for very small businesses, use a price formula. There are pros and cons of using a price formula in a BSA. Clients that take a formula approach often engage Exit Strategies to design a formula that is more robust (better tracks future value) and replicable. As part of this process, we typically perform a benchmark valuation and meet with all shareholders to explain our valuation and formula, and incorporate their 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 periodically. We can review your BSA 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, time delays and disputes 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.