The Importance of a Business Valuation During a Partnership Dispute

Many businesses, both large and small, are owned by some form of partnership. Whether you work with a trusted family member, long-time friend, or a handful of investors you’ve only recently met, partnership disputes are often inevitable. From financial needs to differing opinions, even sickness, there are often many issues that arise overtime that could affect your business partnership. Whatever the reason, a certified business valuation conducted by a neutral business broker is essential to resolution. Consider the following information on the importance of a business valuation during a partnership dispute.

How Your Business Will be Valued

There are several ways to determine the value of a business during a partnership dispute. Because each partnership is unique, the way in which a business is valued must factor in the needs of all parties involved. Typically, it is best for each partner to agree to the type of valuation sought, if possible. This will be beneficial in any legal decisions made during the dispute.
Common ways to value a business in a partnership dispute include:

• Market-Based Value: In this approach, the value of a business is based on the sales price of similar businesses in the area, much like determining the value of a home. Unfortunately, such a valuation may prove challenging if few comparables can be found.
• Income Based Value: In this approach, the cash flow generated by the business is evaluated to determine the most accurate value of the business. Both current and future income are included in the evaluation.
• Asset Based Value: In this approach, the basic formula of assets minus liabilities is used to determine value. The challenging aspect of this approach is determining the value of intangible assets to the business, such as patents, trademarks, and a brand’s reputation.

Why a Business Valuation is Needed

Understandably, an exit strategy is not one of the first things business partners think of when they start a business. However, as the needs and desires of business owners change overtime, it is wise to consider exit planning before an exit is looming. If a well-drafted exit plan is in place and agreed upon by all partners, then a certified business valuation will be used to determine the buy-out amounts as determined in the contract. While disagreements may still exist while following an established exit plan, the process to resolve the partnership dispute is typically more straightforward.

Unfortunately, many businesses have no plan in place for the potential exit of a partner. In these situations, a certified business valuation may be the starting point for negotiations between all parties involved. If no agreement can be made between these stakeholders, the valuation will then be used in any legal proceedings to develop the terms of a court-ordered resolution. Whether you are involved in an amicable split or a more hostile legal battle, a certified business valuation is needed before decisions about the business’s future can be made.

Work with a Certified Broker

While business owners often take a do-it-yourself attitude toward their businesses, saving money and gaining knowledge in the process, determining the value of your business during a partnership dispute is not something you should DIY. Many online websites offer different formulas for valuing a business, but these ballpark valuations may not be as accurate as you may think. A number of factors go into determining the true value of a business, from the economy and real estate markets to trademarks and patents. An experienced business broker will be able to analyze the unique aspects of your business to determine the best value.

In addition, it is quite common for partners to disagree on the true value of the business, especially during a dispute. Working with a certified business broker will ensure you have an objective, third-party valuation for your business, based on years of experience, not the potential biases of business owners involved in conflict. Whether you are seeking an amicable buy-out or you are involved in a tense legal dispute, a certified business valuation is more likely to be accepted by all parties involved. To avoid the argument of what the business is truly worth, it is wise to consider working with an experienced business broker.

Navigating the challenges of a partnership dispute while still running your business can be a difficult task. Whether you’ve agreed to the terms of the resolution or you are still determining how to resolve the dispute, a certified business valuation is a critical step in the process. Work with an experienced M&A professional, who will analyze your unique business and provide an objective, third-party value of the business, one that can be accepted by all parties involved and recognized in potential court proceedings. Contact a certified business broker today to learn the value of your business.