To prevent an uncomfortable and embarrassing separation, the owners should agree on how to separate before joining together. Very similar to a prenuptial in marriage, a ‘Cross Purchase Agreement’ identifies the various business issues to address such as valuation of the ownership position, the respective form of purchasing the departing ownership and time period of payout.
Business valuation is a methodical process of determining the overall net value of a business. Generally performed by a CPA, the preparer follows a promulgated set of standards to determine the overall value of a small business. The final document is customarily used as a basis of determining a buy-out or buy-in for owners of small business.