Partner wants out of LLC but we disagree on buyout price

Need help here. My business partner (50/50 LLC, consulting firm) wants to leave the business. We both agree he should exit, but we're miles apart on valuation.

Our operating agreement says buyout price should be "fair market value as determined by the remaining members" - which seems like it gives me the power to set the price? But he's saying that's not enforceable and wants to hire an appraiser.

Business facts: 3 years old, $850K annual revenue, about $120K profit last year. He wants $300K for his 50% stake (basically 3x revenue multiple). I think that's crazy - we have zero assets, it's just me and him billing hours. I offered $100K (book value plus some goodwill).

Can he force an independent valuation? What's standard for service businesses like this?

Went through almost this exact situation last year. That "fair market value as determined by remaining members" language is sketchy and probably won't hold up if challenged. Courts don't like one party having sole discretion over price in buyout situations.

For consulting firms, I've seen everything from 1x revenue to 4x EBITDA depending on client concentration, recurring revenue, etc. $300K for 50% of a $850K business isn't unreasonable if you have good client retention.

Business attorney here. That operating agreement language is problematic and likely unenforceable as written. Courts generally require buyout valuations to be "fair and reasonable" even when one party has discretion.

Few paths forward:

• Negotiate directly. Most service businesses sell for 2-3x EBITDA or 0.5-1.5x revenue. With $120K profit, his 50% would be $120K-$180K range using EBITDA multiple.
• Joint appraisal. Both parties agree on a single appraiser and split the cost ($3K-$7K typically). This is fastest and cheapest.
• Dual appraisal. Each party hires their own appraiser, then average the two values or have appraisers pick a third to break tie.
• Mediation. Mediator helps you negotiate. Much cheaper than litigation.

Do NOT just refuse to negotiate or claim absolute discretion under the operating agreement. That's a lawsuit waiting to happen and you'll lose credibility with the court.

@BizLawyer_Sarah appreciate the reality check. So if we go with joint appraisal, what do they actually look at? Like I said we have no real assets - no office lease, no equipment, just two people with laptops billing clients.

Also worried about this: what if clients leave when he does? We have like 6 main clients and he brought in 3 of them. Does that affect valuation?

I sold my 50% stake in a similar consulting business last year. Here's what the appraiser looked at:

• 3 years of financials (revenue, profit margins, growth trajectory)
• Client concentration and retention rates
• Recurring vs project-based revenue
• Whether business can operate without the departing partner
• Comparable business sales in the industry

The "will clients leave" question is huge. In my case we did an earn-out structure - base payment upfront, then additional payments over 12 months if his clients stayed. Might be worth considering.

@BusinessOwnerTJ - Client retention risk is absolutely considered in valuation. If 50% of revenue is tied to relationships he controls, that significantly impacts "fair market value."

Earn-out structure is smart here. Example structure:

• $120K upfront (conservative base value)
• Additional $60K paid over 12 months IF his clients remain and continue billing
• If clients leave, you only paid for the value that actually transferred to you

This protects you from overpaying while still giving him potential for the higher value he wants. Include non-solicit language so he can't actively poach the clients after exit.

Finance perspective: $100K is too low, $300K is probably too high. For a $850K revenue service business with $120K profit:

Reasonable range: $150K-$210K for his 50%

Math: $120K profit x 2.5-3.5 EBITDA multiple = $300K-$420K total value. His 50% = $150K-$210K.

The lower end applies if client retention is questionable. Higher end if you have long-term contracts and he's not client-facing.

Update: Had a call with him where I proposed the earn-out idea. He's actually open to it but wants the upfront higher ($150K base + $100K earn-out over 18 months).

Numbers are getting closer. Going to draft a letter of intent and then get a lawyer to write up the actual buyout agreement. Thanks for all the input, especially @BizLawyer_Sarah - the earn-out structure makes way more sense than fighting over a single number.

Make sure the buyout agreement has a solid non-compete and non-solicit. Seen too many cases where the exiting partner immediately starts a competing firm and takes all the clients.

Glad you're making progress. Few critical items for the buyout agreement:

• Non-compete: 1-2 years, reasonable geographic scope (or industry vertical if consulting is remote)
• Non-solicit: 2-3 years for clients AND employees. Define "solicit" clearly.
• Transition assistance: Require 30-60 days cooperation introducing you to his clients
• Earn-out mechanics: Exactly how you calculate retained revenue. Use specific formulas, not vague language.
• Confidentiality: Can't share client lists, pricing, processes, etc.

Don't cheap out on the lawyer fees here. A bad buyout agreement will cost you way more than the legal bill. Budget $3K-$8K for a solid agreement.

Final update: Got a business attorney (not Sarah, but someone local). We agreed on $140K base + $120K earn-out over 24 months tied to client retention. He gets the earn-out payments quarterly as long as his former clients stay active.

2 year non-compete for our industry vertical, 3 year non-solicit on clients and any employees we hire. He has to do 45 days of transition/intro calls.

Signing next week. Actually feeling good about this now vs the anger/stress from two weeks ago. The earn-out structure was key - aligns our incentives and protects me if clients bail.

Thanks everyone for the advice!