The 1% Solution to Buy-Sell Agreements

Posted by Bob Burton on Wed, Jan 30, 2008 @ 09:32 AM

Buy-Sell Agreements

We are all intimately familiar with the need for buy-sell agreements when dealing with closely-held private business interests, but how often are we aware of the typical problems and shortcomings encountered with most agreements? There are three important things to remember here: (1) Getting Agreement NOW when everyone's interests are reasonably comparable; (2) Paying attention to the Six Defining Elements of a proper agreement (Standard of Value, Level of Value, the "As Of" Date, Qualification of Appraisers, Appraisal Standards, and Funding Mechanisms); and (3) Periodically applying a Buy-Sell Audit Checklist.

One of the key factors requiring particular attention here is the valuation methodology being employed. An interesting idea to suggest is the "1% Solution": having the parties devote 1% of the business value annually to hiring the expertise necessary to make sure that all aspects of the agreement are still relevant, up-to-date, and accomplishing the desired results.