Article by: Nick Mason, Attorney, Shaheen & Gordon, P.A.
Note: A version of this article was originally featured in the November 21, 2025 issue of New Hampshire Business Review as part of the joint piece “Ask the Experts: Protect your business’s legacy with a proper plan.”
It’s an attorney’s job to balance a client’s concerns about their business. Most of the time, that means reassuring them. When it comes to business creation, however, it often means bringing up risks the client hadn’t considered. Their departure, for instance. Though the last thing any entrepreneur wants to think about is how they are going to leave their company, if you have business partners, it’s something you should have a plan for before you open the doors.
No one wants to imagine leaving the company they’re founding, but it’s an important topic to consider. Whatever the reason – disability, death, or disagreement – no business lasts forever. But once things are up and running, it is much harder to determine how to divide up the company and divest in an orderly manner. But forewarned is forearmed – so consider this your warning.
The Value of a Plan
Your succession plan should be clear, concise, and actionable. Your business may rely on its owners’ judgment every day, but succession should not. After all, during a sale, you may be dealing with a family member, guardian, or advisor who may not share your former partner’s insight and wisdom or their knowledge of your spoken-word promises.
A clear roadmap reduces the chances for costly and time-consuming conflict when a sale does have to take place. If you do not have a process for how to trigger, proceed through, and close out a buyout, you will have to invent it on the fly. This will take time and a lot of arguing, when you would rather be running your business.
An earlier agreement may also be fairer overall. If you are inventing a process once you know who is buying and who is selling, then you will want a process that best protects your side. But if you are designing a process before you know who will be leaving or staying, your best bet is to be as fair as possible.
Lawyers may love process, but for a business owner, the real question is about the bottom line.
A Plan for Value
The most important inclusion in a succession plan is a formula to calculate the value of the business. There is no simple way to reduce a life’s work to a number. You could add up all assets and divide that by an ownership share, but that would not necessarily result in a fair price. This type of asset-based valuation is generally only used in total liquidation scenarios, where the business will close after the sale.
Most business sales will use an earnings-based approach instead. This takes the business’s EBITDA (earnings before interest, taxes, earnings, and deprecation) and applies a multiplier, meant to represent future earnings potential. Then, a partner is paid out their share of that earnings-based value. If a company made $1 million last year, and the partners have agreed on a 2x multiplier, a 30% partner would be paid $600,000 (30% of $2 million).
That is a clean solution, but not always an accurate or fair one. For instance, what if last year’s earnings are unusually low for some reason? Say the company made major capital investments that are expected to greatly increase profitability in the next year, or major accounts receivable are due in the next year for contracts secured in the current year. Should that be counted?
This is where a mixed approach that combines assets and earnings is useful. Accounts receivable are an asset of the company and would be reflected in an asset-based approach, but might be disregarded in a pure cash flow evaluation, because the money has not yet been paid. Meanwhile, known risks like lawsuits, major debts, and the like can reduce the overall value – and if not accounted for, may end up with an unfair sale price. But a well-designed, mixed agreement could account for capital expenditures and include near-future accounts receivable in addition to the multiplied earnings approach, resulting in a fair transfer of ownership for all involved.
Ultimately, much of this will vary depending on the business. A bakery with two owners will use a totally different formula from a tech company with ten, or a factory with dozens of institutional investors. Regardless of what shape your business takes, , the knowledgeable attorneys at Shaheen & Gordon can help you establish a plan that fits your specific needs and will save you time and turmoil when you—or one of your partners—ultimately leaves.
