Skip to Content
Skip to Main Menu

How to value a business for a partnership split

10,000+ Potential Buyers
12,000+ Businesses Sold
60+ Years Experience
40 Offices Nationwide

How to calculate how much a business is worth in a partnership split

As your business grows, it will naturally experience growing pains as it responds to new challenges, adjusts to new trading landscapes, and measures up against competitors. While the business matures, the operational and management structure of your limited company will also change.

Throughout your partnership with another director, a time may come when they will exit from the business to pursue new goals or because they can longer support the business. Both partners will enter negotiations to discuss the future of the business and its ownership, which will commence with a valuation of the business.

What happens when a partner leaves a partnership?

The possible outcomes of a partnership split may include a partnership buyout when another director buys the shares, sells the business, or closes the business.

  • Partnership buyout – When a partner buys the shares of another partner to secure control over the business
  • Sell business – When both partners decide that it’s in the best interests of the business and partners to sell the partnership business as a whole
  • Close partnership – All partners may decide to divide the profit, split the partnership and close the business

When a partner chooses to leave the business, the partnership settlement will divide business interests and assets based on how much the business is worth. How is the selling price of a partnership determined? The selling price of a business partnership is determined by carrying out a business valuation.

 
Selling My Business
  • Previous sales and acquisitions experience
  • Sector specialisms and average success rate
  • Sales value expectations and growth potential
Free Guide Download
10 Key Questions to Consider Before Appointing an Advisor
Our Essential Checklist to Selling your Business

How do you value a business partnership?

A common question asked in the event of a partnership split is - how do you value a business when one partner leaves? To value a business in a partnership split, or to value the buyout of a business partner, you will need to appoint a professional business valuer.

A business valuer or a business transfer agent specialising in business valuations (also known as a business broker) will require three years of company accounts to value the business. There are different methods to value a business, from assessing asset value, discounted cash flow and price-to-earnings ratio.

Asset Valuation - Total value of assets owned by the business, and their future value

Price-to-earnings ratio – Calculate net profit and multiply this by multiples set for each sector

Entry Cost – Calculate how much it would cost to set up a similar business and get it operational

Discounted Cash Flow – Based on forecasted future cash flow

Industry rules of thumb – Compare previous sales to determine the going price of a business

An experienced business broker will have built a database of comparable sales data which can be used to compare how much similar businesses sold for. This can help to accurately calculate the saleable value of a business.

Disputing a valuation in a partnership split

If a partner disputes the valuation and fails to negotiate a settlement agreement, alternative dispute resolution may present a solution. Alternative dispute resolution can take the form of mediation which is when a mediator is used to facilitate communication between both parties.

At Selling My Business, our expert team of business valuers can value a business for a partnership split. We have over 60 years of experience in selling and valuing businesses, so we understand what factors influence the value of a business and how to increase business value.


Get in touch with Selling my Business

For helpful guides on selling a business and to hear about our FREE business-selling seminars, simply fill out the form below. We NEVER share your contact details. All emails include an unsubscribe link. You may opt-out at any time.

Here at Selling My Business we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See Privacy Policy.

Thank you for submitting your interest in our seminars.
Close Menu

This site uses cookies to monitor site performance and provide a more responsive and personalised experience. You must agree to our use of certain cookies. For more information on how we use and manage cookies please read our PRIVACY POLICY