Buy-sell agreement valuations that work when the trigger event arrives.

A buy-sell agreement valuation establishes the price at which a departing owner's interest transfers to the continuing owners when a trigger event occurs — death, total and permanent disability, retirement or exit. Prismi designs workable valuation mechanisms at the drafting stage and delivers the independent trigger-event valuation that the estate, the continuing owners and their advisers can all accept, prepared with ATO market valuation expectations in mind.

When a buy-sell agreement needs a valuation

A buy-sell agreement needs valuation work at two points. The first is drafting: the deed must specify how the price is set — who appoints the valuer, on what basis of value, at what date, with what information access and at whose cost. The second is the trigger event itself — the death, disablement or exit of an owner — when that mechanism must produce a number the estate will sell at, the continuing owners will buy at, and the insurance in place can fund. In practice, most buy-sell deeds are drafted around the insurance, and the valuation clause is the least developed part of the document. Owners discover this at the worst possible time: a co-owner has died, the family is waiting on the proceeds, and the deed says only that the interest transfers at a fair value to be agreed between the parties. Nothing about that clause is operational.

The three ways deeds set the price — and how each fails

Most buy-sell deeds use one of three mechanisms. A fixed or agreed value records a figure in the deed or an annual minute — simple, but it decays. In practice the figure is agreed once and rarely updated, and by the time a trigger event occurs it may be years stale — under-compensating the estate or over-charging the continuing owners, and creating tax exposure because the transfer is not at market value. A formula — a multiple of EBITDA or revenue — looks self-executing but is not: a static multiple ignores changes in earnings quality, customer concentration and market conditions, and the inputs invite dispute over what counts as EBITDA and which add-backs are allowed. An independent trigger-event valuation is the most robust mechanism, but only if the clause can actually be executed: a named appointment process, market value as the basis (IVS 104), the valuation date fixed by the deed, information access, cost sharing and a path for resolving disagreement. We work alongside the lawyer drafting the deed to specify that machinery — the legal drafting is theirs; the valuation mechanics are ours.

Trigger events — and keeping the insurance aligned

Each trigger event transfers the interest under different pressures, but all of them rely on the same thing: a current, defensible value that the insurance cover was actually sized against. If the business has grown and the cover was set against a stale figure, the insurance funds only part of the purchase price — and the continuing owners fund the balance personally, at exactly the moment the business has lost a key person.

• ·Death of an owner — the interest passes to the estate and the continuing owners buy it, typically funded by life cover
• ·Total and permanent disability (TPD) of an owner
• ·Trauma or critical illness, where the deed includes it as a trigger
• ·Retirement or a planned exit at a nominated date or age
• ·Voluntary exit or resignation from the business
• ·Default events — insolvency, loss of a required licence, or breach of the deed

Agreed values go stale — set a refresh cadence

An agreed value is evidence of what the owners once thought the business was worth — not what it is worth at the trigger date. Earnings move, multiples move, key contracts are won and lost. A figure agreed three years ago protects nobody. A workable cadence is an annual review — ideally alongside the insurance renewal, so the cover moves with it — and a full independent revaluation every one to two years, or immediately after any material change: a major contract won or lost, an acquisition, or a step change in earnings. Because Prismi retains the working file for 10 years, refresh valuations build on the established methodology and evidence base rather than starting from scratch.

Why the ATO cares what the deed says

A transfer under a buy-sell agreement is rarely a bargain struck between strangers — the parties are co-owners, and on death the transfer is between the estate and the continuing owners. Where the parties do not deal with each other at arm's length, section 116-30 of the ITAA 1997 can substitute market value for the actual capital proceeds. If the deed produces a price below market value, the departing owner or their estate can be assessed on proceeds they never received; a price above market value creates the mirror problem on the buy side. The value can also feed into small business CGT concession eligibility for the departing owner. The ATO's market valuation guidance sets clear expectations for the evidence and reasoning behind the number, so the price the deed produces needs to be one the file can defend. Prismi prepares the independent valuation only — we are not a registered tax agent, and your accountant confirms how the provisions apply to the transfer.

A number the estate and the continuing owners both accept

At a trigger event the estate wants the highest figure, the continuing owners want the lowest, and both sides are under pressure — often grieving, always on a deadline. What makes a single valuation acceptable to both is genuine independence: fees fixed at engagement and never contingent on the outcome, market value assessed on the Spencer willing-but-not-anxious principle, the work performed under APES 225, and a report that identifies the supportable range and concludes at the position methodology and evidence best defend — signed by a senior reviewer with an independence statement. If either side asks us to land on a target figure, we will say so and decline the engagement on those terms. That refusal is what makes the report worth having: both sets of advisers can rely on it because neither side controlled it.

Tier recommendation

Periodic refresh valuations for a straightforward trading business generally sit at the Essential tier (from $1,495 + GST, 10–14 business days) or the Comprehensive tier (from $3,995 + GST, 15–25 business days), depending on complexity. A trigger-event valuation on death or TPD — where the estate, the continuing owners and potentially the ATO will all examine the number — warrants the Defensible Valuation File (from $8,995 + GST, 25–35 business days). Where the valuation date is the date of death and the report is commissioned months later, the retrospective surcharge of $495 per historical date applies; additional entities are $750 each. Owners who want to stress-test a proposed mechanism before signing the deed should consider the Valuation Range & Scenario Review premium engagement. Rush turnaround is available at +30% of the base fee, subject to capacity.