Whether a business transaction is taking place within your actual family (those individuals related to you by blood) or within your business family (those individuals you are closely related to via financial agreements or professional history), it’s a good idea to get an independent valuation. Working with third-party service providers throughout the process helps protect the buyer, the seller and their relationship with each other.
Independent valuation involves less bias
Any business transaction between people that know each other is potentially fraught with bias, and this is especially true when it comes to selling or buying a business. First, there is the bias between the two individuals. Someone selling to a close friend, business partner or relative might feel compelled to offer the business at a lower price — even selling it under the market value — as a favour to someone they care about or respect. At the same time, a buyer might be less likely to negotiate as aggressively with someone they know. Both parties are thus at a disadvantage.
To add to the personal bias that exists, there is often a bias with regard to the business. The seller might obviously have a bias that makes it difficult for him or her to understand the true value of the business. That’s true in many transactions. However, a family member or someone else close to the business might have the same bias as a seller, and that can result in a sales price that isn’t in line with the market and is ultimately unfair to the buyer.
An independently set value leads to less future conflict
Even if you believe you can come to a fair agreement now, one or both sides may come to see the transaction differently in the future. New information or just the way things turn out a year or two down the road could result in a grudge between the buyer and seller. One party might come to believe that the other party got the better deal, whether by luck or machination. Even when individuals know logically this isn’t the case, they might subconsciously take out frustration about how the situation turned out on the other person. If, however, an independent party prepared any valuations, and pricing decisions were based on that information, it’s less easy to blame or find fault with the person on the other side of the deal.
Both buyer and seller can work with a separate professional
Relationship doesn’t always equate to agreement and trust, so it’s important to note that buyers and sellers don’t have to work with the same brokers and valuation professionals. While buyer brokers aren’t compensated out of the commission on a business sale — which means they would have to be paid a fee by the buyer — they can help ensure the transaction is as much in the buyer’s favour as possible. Both buyers and sellers can also pay separately to have a valuation performed by someone they trust, and those figures can help related individuals come to a fair agreement with less worry about future impact.
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