I have recently approached my business partner with a request to buy out his membership in our LLC. His involvement as of late is declining and a buy out was something we had planned on from day 1. I was very "young and dumb" when we started the business 4.5 years ago, so nothing regarding the buyout amount was set in stone.
He has given me his requested number and it seems a bit high. Keep in mind he has not entered our office in six months and simply handles accounts payable and makes deposits. He has brought in a few clients, but nothing more than what our existing clients already refer.
I feel the amount is a bit high. Is there are simple formula to determine what the buyout price should be for our business. We are equal 50/50 members in the LLC.
Ask an accountant to put a value on your business. It will be something along the lines of the value of your assets less liabilities, plus some multiple of your annual profitability on your sales.
So if your company has $50K of equipment, a lease worth $20K, and no other assets or liabilities, then your company would be worth $30K, plus your income factor. If you had an average of $100K profit in each of the last 3 years, then your business would be worth between $130K and $500K, depending on your industry.
Don't forget to calculate in any salaries drawn before looking at the bottom line.
Your company is worth what you can sell it for. A valuation based on assets and income is fine, but only relevant if you have a serious prospect.
In your case, I would tell your partner you are going to each get 3 bids, and then take the middle of each, (middle from your 3, and middle from his). Then take the average of both for a fair figure.
The valuations are what prospects will look at.
Typically, i feel a company is worth 3 to 4 times it yearly net profits.