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Buy-Sell Agreements for Home Service Business Owners with Partners
If you have a business partner, you need a buy-sell agreement before trying to sell the business. Here's what it covers and why it protects both parties.
JT
Jason Taken
HedgeStone Business Advisors
Many home service businesses have two owners — two plumbers who started a company together, two brothers who built a landscaping business, a husband and wife who run a cleaning company. When it's time to sell, the absence of a buy-sell agreement can create serious problems. Here's what home service business owners with partners need to know.
What a Buy-Sell Agreement Does
A buy-sell agreement is a legally binding contract between business co-owners that specifies what happens when one owner wants to exit (sale, death, disability, divorce, or disagreement). It typically covers: how the business is valued in each triggering event, whether the remaining owner has a right of first refusal to buy the exiting owner's interest, how the purchase of an exiting partner's interest is financed, and what happens if neither owner can buy the other out (forced sale to a third party).
Why You Need One Before Selling
Without a buy-sell agreement, a 50/50 partner can block a sale they don't want. Buyers won't complete a deal if either owner can torpedo it post-LOI. Additionally, if a partner dies or becomes disabled without a buy-sell agreement, their interest may pass to a spouse or heir who has different intentions for the business. A buy-sell agreement prevents the business from being held hostage to a family member who didn't build it.
Valuation Mechanisms in Buy-Sell Agreements
Common valuation approaches in buy-sell agreements: agreed-upon fixed value (updated annually, simple but can be stale), formula approach (SDE × multiple, well-suited for home service businesses), or independent appraisal (expensive but defensible). For home service businesses, a formula approach (EBITDA or SDE × an agreed multiple range) is typically most practical and is updated automatically as business performance changes.
What to Do If You Don't Have One
If you're planning to sell and don't have a buy-sell agreement (or have a partner dispute), engage a business attorney immediately. A sale of a multi-owner business without alignment between owners is extremely difficult. Buyers will not proceed if they sense ownership disputes. Resolve the partner situation — including documenting the agreed sale terms among owners — before approaching the market.
Frequently Asked Questions
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