Buying Out a Business Partner
How to Mitigate Partner Disputes and Disagreements
Using a Business Partner Buyout Valuation
Table of contents
- Buying Out a Business Partner
- How to Mitigate Partner Disputes and Disagreements
Common issues that arise among business partners and partnership buyouts
Disputes between business partners in a small business, while unpleasant, are not uncommon in the life of a business. However, these partnership conflicts can have negative consequences for the long-term success of the enterprise and the personal relationships involved.
Sometimes, these disputes may even lead an individual to consider exiting the partnership entirely. Drafting a buy-sell agreement that references your operating agreement as early as possible is crucial when establishing a business relationship. This is where the owners’ interests are most closely aligned.
These partnership agreements provide guidelines for handling exits, shareholding, and funding purchases. They are helpful in planning for events like death, disability, divorce, or retirement and in navigating the process of parting ways with partners.
Common business partnership dispute issues
However, it is important to note that creating a proper exit plan may not necessarily shield your business from disputes. Some common partnership litigations can arise from disputes over a business’ exit plan.
- Business Valuation for Partnership Disputes
A certified business valuation by an accredited Business Appraisal FL|GA|HI team member analyzes a company’s worth through a strategic and in-depth process. It considers various factors, calculations, and studies.
Valuing the end of a business partnership is not enjoyable for either party. We strive to make the valuation process transparent and easily comprehended within the partnership or buyout agreement.
While working with a valuation company takes several weeks, the resulting comprehensive valuation report justifies the wait by providing insights into each partner’s equity stake.
This is because appraising a company is an art—not a science—with profound implications. Here is another article on the 7 Benefits of a Certified Valuation that discusses buying out a partner.
Unbiased Third-Party Business Valuation for a Partnership Buyout
Moreover, the appraisals reached by a BA FL|GA|HI appraiser are independent and unbiased. The appraiser requires data, paperwork, and financial information to conduct research. For more details, click here.
Determining the value of a business is often a contentious issue in partnership disputes. This is due to the different valuation methods used when buying out a company. There are key steps in buying out a business partner.
This is why we advise including the valuation method most preferred within the exit strategy or buy-sell agreement. Doing so will ensure that you and your partners agree on the company’s worth when estimating its worth to buy out a business.
- Unforeseen business events
Of course, external events may arise throughout the business’s lifetime that may impact the relationships of the business partners involved.
Those sorts of events may include death, divorce, or injury. Effects from these events can lead to a business needing to be sold or restructured. This is because disagreements regarding the partnership and salary benefitting heirs or spouses of a deceased or injured partner may occur as a result.
Please read the need for a business valuation as part of exit planning.
- Partnership Conflicts
Quite common to many business litigation issues revolve around personal conflicts and disputes among partners. Differences in personalities and work ethics can contribute to this sort of tension. We have seen partnership disputes over the proceeds of business loans.
Well-thought-out exit strategies and drafted buy-sell agreements can help mitigate these conflicts by describing the procedure for terminating or expelling a partner under these circumstances.
How a business valuation can help with buying out a partner
Although you might take various steps to mitigate conflict between you and your partners, you should consider incorporating an annual company valuation as part of your conflict resolution approach.
An annual valuation will be beneficial if a particular partner attempts to leave the partnership after the buy-sell agreement is triggered. This is because if your company is consistently appraising its worth with experts like those at BA FL|GA|HI, an exiting partner will have a much more difficult time challenging the amount or method the appraiser relies on.
Please read what is a business valuation report and see how it can help when business partners buy out your business.
Additionally, you can talk to the appraiser about how much data to use in their valuation to help mitigate disputes about the company’s value and each partner’s equity.
For example, using three years of data instead of a single year’s worth might help ensure that the valuation is a more accurate and fair portrayal of the company’s true value.
Partnership Issues Conclusion
Conflicts and disagreements are almost inevitable aspects of owning a business. As a business owner, it is important to be familiar with potential sources of conflict to avoid them in the future when you start developing your business exit strategy.
Part of this approach involves consulting financial and legal experts who can help business owners through their situation. For example, implementing the terms of a well-drafted and negotiated buy-sell agreement can help set you up for success.
Consulting experts like professional appraisers at BA FL|GA|HI will also go a long way. Doing so ensures that your company is professionally appraised, which can help prevent and resolve conflicts that arise throughout your business’s lifetime.
All business partnerships end eventually. We want to help you end your partnership relationship as profitably and smoothly as possible.
As your business valuation expert, we work with your business attorney to help with the buyout process by valuing and arranging financing to sell your business from the selling partner to the buying partner.