Valley Valuations provides business valuation and consulting services to attorneys and their clients, to assist with the creation, adjustment, and business valuation when a triggering event happens.
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 private business. Good buy-sell agreements provide (1) a means to liquidate shares at a fair price, (2) a funding plan that is affordable for the company and realizable by the selling shareholder, (3) restrictions on who can own shares, and (4) certainty for tax and retirement planning purposes.
Buy-sell agreements can be misunderstood and the formulas for valuation of the business are often outdated or nonsensical – they were not developed by professional valuators. These agreements can bring hard feelings and confusion when the agreements provide for processes that are not appropriate for the circumstance. Valley Valuations can provide a review of existing agreements and comment on whether they are appropriate, given the type of business and circumstances, or whether the agreement needs to be updated.
Buy-Sell Agreement Setup
Valley Valuations will review your buy-sell agreement from valuation, economic and business perspectives. We will identify potential problems and make appropriate suggestions on how to amend. 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. Small company agreements often name just one appraiser. An initial benchmark valuation can take the anxiety out of the process for the owners.
Appraise Upon a Trigger Event
Valley Valuations routinely appraises shares when a Buy-Sell 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. Often, insurance is needed fund the buy-sell when a triggering event happens. Our valuations can help establish the insurance need, if any, and help the parties handle the buy-out should it happen. Valley Valuations provides initial valuations and updates to keep all stakeholders informed.
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. Clients that take a formula approach often engage Valley Valuations to design a formula that is more considerate of factors that are important to the owners. 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 into the process.
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 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, time delays and disappointments.
Shareholders sometimes litigate over poorly designed, ambiguous or outdated buy-sell agreements. When this happens, Valley Valuations can provide services to assist in the resolution.