How to Mitigate Partner Disputes and Disagreements
Using a Business Partner Buyout Valuation
Table of contents
Common issues that arise among business partners and partnership buyouts
Although unpleasant, disputes between business partners may accompany the life of a business. These interactions can often be detrimental to the longevity of the enterprise and the health of the personal relationships involved.
Occasionally, these disputes may encourage a particular individual to want to exit the partnership altogether. This is why it is important to draft a buy-sell agreement as close to the onset of launching the business relationship. That’s because it is at that point in time that the interests of the owners most closely align.
These agreements establish the guidelines needed to allow for exits, shareholding, and funding for purchases. They especially help you, as an owner, plan in advance for how to go about parting ways from partners after events like death, disability, divorce, or retirement occur.
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. Here are a few of the most common business partnership litigations that may arise from a variety of common disputes regarding a business’ exit plan.
- Business valuation for Partnership disputes
A certified business valuation by an accredited Business Appraisal FL|GA|HI team member takes strategic and in-depth analysis to determine an accurate estimation of a company’s worth. The process is complex and involves various considerations, calculations, and studies.
A business partnership’s end is no fun for either side. We tried to make the valuation process transparent and easy to understand within the scope of the partnership agreement or buyout agreement.
Although working with a valuation company will take several weeks, the comprehensive valuation report produced will make the wait worthwhile to understand 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 talks about 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. For the professional appraiser to be able to conduct their research, a certain amount of data, paperwork, and financial information will need to be provided.
Regardless, determining the worth of the business is one of the most commonly disputed issues that may arise within business partnership disputes. This is because there are a variety of valuation methods that one can use to determine the true worth of a company when buying out a business.
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 are in agreement when attempting to estimate the company’s worth to buy out a business.
- Unforeseen business events
There are, of course, external events that may arise throughout the lifetime of the business that may impact the relationship of the business partners involved.
Those sorts of events may include death, divorce, or injury. Effects from these sorts of 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
Very 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.
Well-thought-out exit strategies and drafted buy-sell agreements can help mitigate these conflicts by describing what procedure will be followed to terminate or expel a partner under these circumstances.
How a business valuation can help with buying out a partner
Although there are a variety of steps you might take 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 relied upon by the appraiser.
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 as part of their valuation to help mitigate disputes about the company’s value and each partner’s equity.
Using three years of data instead of a single year’s worth, for example, 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 an inevitable aspect of owning a business. As a business owner, it is important to be familiar with potential sources of conflict to avoid them moving forward.
Part of this approach involves consulting financial and legal experts who can help business owners through their situation. Implementing the terms of a well-drafted and negotiated buy-sell agreement, for example, 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 the course of your business’s lifetime.