Countering the valuation in a partner buyout scenario.

Your business partnership is no longer a productive and positive relationship. The two of you disagree about the future of the company or there has been a serious breakdown of trust. You recognize that a buyout of your partner might be the simplest solution, and so you bring the issue up to them in one of your regular business development meetings.

Unfortunately, they take that as an opportunity to put together an obviously inflated business valuation and demand a buyout that would effectively consume the majority of your business’s liquid capital or resources. Before you give up and try to continue working with your partner, you may want to challenge their valuation by securing one of your own.

Some people will manipulate the business valuation process.

To some degree, business valuations can be a bit subjective. Certain factors, like the value of business assets and its revenue in the last few years, are relatively black and white. However, projections for future revenue and even the depreciation of your facilities and machinery can involve some interpretation.

Two different, theoretically neutral professionals evaluating the same business could come up with vastly different valuations for the same company. When you and the partner you want to buy out try to put a price on the same business, your opposing interests will inevitably influence the price that you suggest.

As the person assuming responsibility for the company and paying off their partner, you want what you pay to be fair so that you have enough resources to continue running the business after your partner leaves. As the party taking a one-time payment in return for all of their investment in the company, your partner obviously wants to maximize what they get.

What if you cannot resolve the disagreement?

If you present a valuation that you can defend based on your company’s recent sales records and current financial circumstances, you might expect that your partner will compromise and work with you as you negotiate their exit from the company. Unfortunately, they might take the opposite approach, refusing to compromise.

The dispute between the two of you could quickly start to affect the company’s operations and value, which is why you need to think proactively about how to resolve this matter. You may eventually need to go to court to ask a judge to weigh in on your partnership dispute and determine what would be appropriate. Sometimes, filing a lawsuit will be enough to get your partner to meet you halfway or at least agree to attend a mediation session with you.

Preparing for business litigation may be the only option when you and your partner disagree about what your business is actually worth.

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