Valuations When a Partner or Shareholder Exits
An independent valuation sets a documented value on a departing partner’s or shareholder’s interest in a trade business, so the exit can be agreed on evidence.
Why an independent valuation
When one of two or three owners leaves a trade business, the remaining owners have to pay for the departing interest and the departing owner has to be paid fairly. Both sides know the business well and both are interested in the answer, which makes agreement difficult without an outside figure.
The exit also changes the business. A departing partner may be the licence holder, the estimator or the person the key customers deal with. A valuation has to consider what the business looks like once they have gone and what earnings the remaining owners can expect to keep, which is often not what the business earned with the partner in it.
Partnership deeds and shareholders agreements often say how an exit is priced and paid, and the answer is not always easy to apply. Capital accounts, loans, work in progress, goodwill and retained profits can be treated differently from one agreement to the next. We read the terms and apply them as written, and we explain where the documents leave a question open.
When owners and advisers ask for one
- One of two plumbing or electrical partners is retiring and the other will buy them out
- A partner or director is leaving to start their own business or take another job
- A partner or shareholder is unable to keep working through illness or injury
- An owner has died and the estate and the remaining owners need to agree a price for the deceased owner’s interest
- A three-owner civil or building company where one owner wants out and the other two want to continue
- Owners who have fallen out and want a price settled by a neutral valuer rather than argued
- A deed or agreement that requires an independent valuation to set the exit price
- A family partnership where one family member is leaving the business
What the valuation needs to address
Settled in the engagement letter before work starts, so the report answers the question it is being used for.
The exit clause
The partnership deed or shareholders agreement may set the valuation date, the standard of value, the treatment of goodwill and work in progress, and how and when the departing owner is paid. We read it first and follow it, and tell you where we have had to interpret it.
The interest being valued
A partner’s interest includes more than a share of profit: a capital account, loans to or from the partnership, a share of work in progress and a share of goodwill. We confirm which are included, and whether the interest is a partnership share, shares in a company, units in a trust or a combination.
Control and discounts
An exiting owner holding half of the business is a different case from one holding fifteen per cent. We consider voting rights, the ability to direct or block decisions, and restrictions in the governing documents, then say whether any discount or premium applies.
Effect of the departure
The agreement usually decides whether the business is valued as it stands before the exit or as it is expected to be after it. Either way, we examine which licences, customers, staff and skills leave with the departing owner and what it would cost to replace their work.
Normalised earnings
Owners in a trade business often pay themselves in different ways: drawings, salaries, trust distributions, vehicles and family wages. We restate them to a market cost for the work each owner does, so the earnings reflect the business rather than the owners’ pay arrangements.
Valuation date and reliance
The date is usually the date of departure or a date set by the deed. The report is for the parties named in the engagement and their advisers.
How it runs
Before work starts we confirm in writing the interest being valued, the valuation date, the clause that applies and who will rely on the report. Where owners disagree, we also record who has asked for the valuation and that we act independently of every party. Intake starts online at /start.
A draft report is provided before the report is finalised, so the parties and their advisers can correct facts and raise questions. Typical turnaround is 3 to 7 business days once all required information has been received. That is typical rather than promised, and complex matters can take longer.
The Independent Business Valuation is a fixed fee of $1,995 + GST. Exits involving multiple entities, divisions, unusual ownership, disputes or historical dates are complex valuations, quoted in writing from $2,995 + GST before work starts. See pricing.
- Tell us about the business. Complete a short valuation intake.
- Upload your information. Financial statements and supporting information are securely uploaded through the client portal.
- We analyse the business. We review earnings, operating structure, industry characteristics, risks, assets and transferable goodwill.
- Valuation prepared. Appropriate valuation methodologies are applied and the evidence is documented.
- Draft and final report. You receive a draft before the report is finalised.
Important
We do not give legal or tax advice. We value the interest your documents describe: the terms of the exit, including payment terms, restraints and releases, are for the parties and their lawyers, and the tax treatment of the exit is for your accountant or tax adviser.
Information on this website is general in nature and does not constitute legal, taxation or financial advice. The appropriate valuation approach depends on the circumstances and purpose of each engagement.
Common questions
How is a partner’s share of a trade business valued?
It starts with the value of the business as a whole, based on the earnings a buyer could expect to keep, and then looks at what the departing partner’s interest includes and how the deed treats it. A half share is not always half the value, and whether it is depends on the rights attached to it, control and what the documents say.
What if the partnership deed says nothing about valuation?
Then the parties need to agree the basis before we start, including the valuation date, the standard of value and how goodwill and work in progress are treated. Their lawyers can advise on that. We record what is agreed in the engagement and the report states it.
Does the valuation decide what the departing partner is paid?
No. A valuation gives an opinion of value. The price, the payment terms and the timing are for the parties to agree, or for the deed to decide. Exits are often paid in instalments, and the terms can matter as much as the headline figure.
We have fallen out. Can you still act?
Yes, if the parties accept that we are independent and agree the scope in writing. If a dispute is already heading to mediation or court, see our page on valuations for disputes, because the engagement and instructions for that kind of work can be different.
Related
Start with a short intake. We confirm the fee and scope in writing.
An Independent Business Valuation is $1,995 + GST, with a draft before the report is finalised. Typical turnaround is 3 to 7 business days once all required information has been received.