One of the more common reasons to get a business valuation is when business owners decide to buy or sell their shares to each other. This can happen in many circumstances including:
- Death of one shareholder
- Divorce
- Irreconcilable differences
- One shareholder moves out of state
- Financial difficulties
- Retirement
There are many reasons that one shareholder may decide to buy the shares of another shareholder. This is often a contentious process unless the shareholders have a written agreement stating how the business is to be valued in the event of a sale. The majority of businesses do not have a written agreement that spells out how the business is to be valued in the event of a sale.
Unfortunately many shareholders end up in court due to a “disagreement” as to the fair market value of their business.
When this occurs each shareholder will hire an attorney and often a business valuator. This ends up with the shareholders incurring large fees.
One way that this can often be avoided is for both parties to mutually select a neutral business valuator and agree to use this persons opinion.
If you are in a shareholder dispute you may want to consider using just one “impartial” business valuator rather then having each shareholder hire their own professional and let them “dual” in court.
Mike Sylvester, CPA/ABV “accredited in business valuation”