Valuations in Buy/Sell Agreements for Private Companies and Businesses

Outline

1. Typical goals of a buy/sell agreement
   1. Owners’ interests will be purchased following a “triggering event”
      1. E.g., death, need to sell, retirement of an owner
   2. Mechanism to set a purchase price depending on market conditions and other factors
   3. Provide a funding source (e.g., insurance policies) to offset liquidity demands
      1. Different possible insurance structures
   4. Valuing a deceased owner’s interest, for estate tax purposes
2. Valuation methods that can be used to establish and update value of owner’s interest
   1. Standard methods
      1. Book value
      2. Capitalization of earnings
      3. Discounted cash flow
      4. Sales-multiple valuations
   2. Alternatives to fair market value approach
3. Valuation standards that can come into play with buy/sell agreements
   1. AICPA SSVS No. 1
   2. Appraisal Foundation Uniform Standards of Professional Practice (USPAP)
   3. American Society of Appraisers, “Business Valuation Standards”
4. Current best practices with valuing private businesses for buy/sell agreements

Benefits

The panel will review these and other key questions:

• Valuation methods that may apply: Book value, capitalization of earnings, discounted cash flow, sales-multiples valuation and others.
• Applicability and key terms of valuation standards: AICPA SSVS No. 1, Appraisal Foundation Uniform Standards of Professional Practice (USPAP), American Society of Appraisers "Business Valuation Standards."
• Related aspects of a buy/sell agreement: Updating the business value and adjusting for growth and inflation, examining underlying insurance policies.

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.