Buy-Sell Agreements: Benefits and Best Practices

Many businesses can benefit from implementing a buy-sell agreement which stipulates the predetermined terms and pricing of transactions involving business interests between owners (or their estates). The benefits of a buy-sell agreement are only as good as its terms, effective execution, and regular updates.


A well-written buy-sell agreement can bestow significant benefits on its owners, such as the following:

  • Facilitate an easy transition in the event of an owner exit or death. Businesses breakups are hard and loss of life is harder. There’s an array of business adaptations and emotions to deal with. A buy-sell agreement can make the transaction that has to take place easy. By codifying and socializing how a transaction takes place, owners and their advisors can go through the process without surprises.
  • Enable succession planning. Most conversations about succession planning are casual. When it comes down to formalizing discussions, the unknown value of the company stifles and stalls conversations. A buy-sell agreement with regular updates gives business owners timely and accurate access to the value of their business.
  • Demonstrate appreciation in value of a private business. While the CEO of a public company can boast stock price growth over the course of a year, his or her private company counterparts are not so fortunate. Employee-owned companies outperform others in part due to their annual appraisal process. A buy-sell agreement coupled with annual valuations can provide timely feedback of effective management.
  • Help evaluate the offer. If someone knocks on your door and offers you a price for your house, you can likely assess the merits of the offer quickly. You know the price of your house or you can look up an estimate in minutes. If someone makes you an offer on your business, can you do the same? If you’re regularly engaging in the valuation process and analyzing your buy-sell agreement, then you can make that assessment easily.

Best Practices  

A poorly written buy-sell agreement can expose owners to additional risk and headaches, so it is important to get it right. What makes for a good buy-sell agreement?

  • Assemble your team of experts. A good buy-sell agreement requires input from a team of experts including lawyers, accountants, and appraisers.
  • Call for a professional appraiser. Business appraisal is a niche discipline and can be outside of the daily practice of a CPA. Hiring a dedicated, qualified appraiser (someone with an ABV or CVA designation) to execute a buy-sell agreement is key to success.
  • Dynamic pricing with guard rails. The pricing formula laid out in a buy-sell agreement should establish methodology, multiples, and rates, but not micromanage the valuation process. Overly specific pricing formulas are inflexible and distort valuations. Instead, a good appraiser should be able to make reasonable judgements.
  • Payment terms matter. While the right price is important, the payments terms (i.e. installments, interest, etc.) for that price are important as well.
  • Life insurance coverage. Buy-sell agreements can also dictate how a company buys its own treasury shares. One effective strategy is to take out life insurance policies on owners. When an owner dies, the company can use proceeds to buy the deceased’s shares into treasury.

The DKB Difference

Whether you’re considering a new buy-sell agreement, reviewing an existing one, or executing a transaction based on one, DKB’s staff of CPAs, ABVs, and CVAs can help you manage the process.