Set A Fair Price To Sell Your Share Of The Business

If, emulating Jack Nicholson and Morgan Freeman, you hope to climb the Pyramids and hit the tables in Monte Carlo when you retire from the business you’ve spent years building, read on. A properly drafted buy-sell agreement can give you the comfort that you can sell your interest in your company to you partners for a fair price.

Some buy-sell agreements include a formula to calculate the buy-out figure. For example: “Three times the company’s average net income over the prior three years” .

This approach is cheap to implement, seemingly easy to calculate, and will lead to consistent results if the company has a history of the same levels of performance year after year. But when the calculation is triggered, who knows whether the company will be looking at significant growth or is about to tank? In these cases, the only thing you know for certain about the formula is that it’s going to give someone a windfall - and that someone may not be you!

You should also bear in mind that measures such as net income can be managed to produce either a high or low value, depending on the personal interests of whoever is doing the managing.

  Set A Fair Price To Sell Your Share Of The Business