Buy-sell agreements depend on buyout calculation

September 25, 2012

The buyout calculations for buy-sell agreement can prove contentious. Find out how you can make the calculations less frustrating.

A: Perhaps the most contentious area of a buy-sell agreement is the method for calculating buyouts. A misstep can lead to an overvaluation, costing the practice more money than it owes. If the practice undervalues the buyout, however, the departing partner may think he or she deserves more money, leading to an expensive and time-consuming legal battle.

Many practices use a fair market value (FMV) approach, relying on lawyers and third-party appraisers to calculate the price of a buyout. Using FMV gives lawyers and appraisers a great deal of latitude to argue about what the buyout price should be, and this ambiguity can cause complications when a partner leaves or retires.

Answers to our readers questions were provided by Reed Tinsley, CPA, CFP, CHBC, a healthcare accountant and business adviser in Houston, Texas.

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