Business Buyout Price Calculator
This calculator estimates the buyout price for a departing partner's share in a business.
Enter the agreed-upon total business valuation and the ownership percentage being acquired. You can also include business-wide debt and cash for a more accurate equity calculation. Ensure consistent currency.
Enter Business & Buyout Details
Understanding the Buyout Price Calculation & Formulas
What is a Business Buyout?
A business buyout is the acquisition of a departing owner's or partner's interest in a company. The remaining owners or a third party pay the departing partner a lump sum or structured payments in exchange for their ownership stake, effectively consolidating ownership.
The Equity Buyout Formula
This calculator uses an adjusted equity formula to determine the buyout price. It's more accurate than simply multiplying valuation by ownership percentage, as it accounts for the company's real assets and liabilities.
Adjusted Equity = Total Valuation - Total Debt + Cash
Buyout Price = Adjusted Equity * Ownership %
This approach ensures the price reflects the partner's share of the company's net worth.
Important Considerations
- Valuation Source: The "Total Business Valuation" is the most critical and often most contentious number. It can be determined by a professional appraisal, a formula in a partnership agreement, or mutual agreement.
- Legal Agreement: This calculator provides an estimate for negotiation. A formal, legally-binding buyout agreement drafted by attorneys is essential to finalize the transaction, outlining payment terms, timelines, and legal releases.
- Taxes & Fees: The calculated price does not include capital gains taxes for the seller or any legal/transaction fees. These should be considered separately.
10 Buyout Calculation Examples
Click on an example to see the step-by-step calculation.
Example 1: Simple 50/50 Partner Buyout
Scenario: Two partners, one is buying out the other's 50% share of a business valued at $800,000.
1. Inputs: Valuation=$800,000, Ownership=50%, Debt=$0, Cash=$0.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($800,000 - $0 + $0) * 0.50
4. Result: Buyout Price = $400,000.
Example 2: Buyout with Significant Debt
Scenario: Buying out a 25% partner in a company valued at $1,000,000, but with $400,000 in outstanding loans.
1. Inputs: Valuation=$1,000,000, Ownership=25%, Debt=$400,000, Cash=$50,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($1,000,000 - $400,000 + $50,000) * 0.25 = $650,000 * 0.25
4. Result: Buyout Price = $162,500.
Example 3: Buyout of a Cash-Rich Business
Scenario: Acquiring a 10% minority stake in a company valued at $2,000,000 with low debt and $500,000 cash on hand.
1. Inputs: Valuation=$2,000,000, Ownership=10%, Debt=$100,000, Cash=$500,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($2,000,000 - $100,000 + $500,000) * 0.10 = $2,400,000 * 0.10
4. Result: Buyout Price = $240,000.
Example 4: Negative Buyout Price (Partner Owes)
Scenario: A 50% partner is leaving a business valued at $500,000 but burdened by $1,200,000 in debt.
1. Inputs: Valuation=$500,000, Ownership=50%, Debt=$1,200,000, Cash=$0.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($500,000 - $1,200,000 + $0) * 0.50 = -$700,000 * 0.50
4. Result: Buyout Price = -$350,000. The departing partner is liable for their share of the net debt.
Example 5: Small Business / Service Company
Scenario: A 33.33% partner is bought out of a design agency valued at $150,000.
1. Inputs: Valuation=$150,000, Ownership=33.33%, Debt=$10,000, Cash=$25,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($150,000 - $10,000 + $25,000) * 0.3333 = $165,000 * 0.3333
4. Result: Buyout Price ≈ $54,995.
Example 6: Majority Shareholder Buyout
Scenario: Buying out a 70% majority shareholder of a company valued at $5,000,000.
1. Inputs: Valuation=$5,000,000, Ownership=70%, Debt=$1,500,000, Cash=$800,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($5,000,000 - $1,500,000 + $800,000) * 0.70 = $4,300,000 * 0.70
4. Result: Buyout Price = $3,010,000.
Example 7: Zero Net Equity
Scenario: A 40% partner in a company where assets (valuation + cash) equal liabilities (debt).
1. Inputs: Valuation=$900,000, Ownership=40%, Debt=$1,000,000, Cash=$100,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($900,000 - $1,000,000 + $100,000) * 0.40 = $0 * 0.40
4. Result: Buyout Price = $0.
Example 8: Real Estate Holding Company
Scenario: One of four equal partners (25%) is leaving a company that owns property valued at $3M with a $2.2M mortgage.
1. Inputs: Valuation=$3,000,000, Ownership=25%, Debt=$2,200,000, Cash=$50,000 (rental income reserve).
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($3,000,000 - $2,200,000 + $50,000) * 0.25 = $850,000 * 0.25
4. Result: Buyout Price = $212,500.
Example 9: Buying a Tiny Slice (Angel Investor)
Scenario: An early angel investor wants to sell their 2% stake in a startup now valued at $10,000,000.
1. Inputs: Valuation=$10,000,000, Ownership=2%, Debt=$250,000, Cash=$1,000,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($10,000,000 - $250,000 + $1,000,000) * 0.02 = $10,750,000 * 0.02
4. Result: Buyout Price = $215,000.
Example 10: Restaurant Partnership Dissolution
Scenario: Buying out a 50% partner in a restaurant valued at $250,000 with a $40,000 business loan and $15,000 in the bank.
1. Inputs: Valuation=$250,000, Ownership=50%, Debt=$40,000, Cash=$15,000.
2. Formula: Buyout Price = (Valuation - Debt + Cash) * Ownership %
3. Calculation: Price = ($250,000 - $40,000 + $15,000) * 0.50 = $225,000 * 0.50
4. Result: Buyout Price = $112,500.
Frequently Asked Questions (FAQs)
1. What is the most important number in this calculator?
The "Total Business Valuation." It's the foundation of the entire calculation. An inaccurate or disputed valuation will lead to an inaccurate buyout price.
2. Why does business debt reduce the buyout price?
Because the departing partner is also responsible for their share of the company's liabilities. The buyout price reflects the net value, so debt is subtracted from the total valuation before calculating the partner's share.
3. Why does cash on hand increase the buyout price?
Cash is a liquid asset of the company. The departing partner is entitled to their ownership percentage of all assets, including the cash in the bank. Adding it ensures the price reflects the full value of their equity.
4. Is this calculated price legally binding?
No. This tool is strictly for estimation and negotiation. A final, legally binding buyout price must be documented in a formal buyout agreement drafted by lawyers for all parties.
5. What if I don't know the business valuation?
You need an agreed-upon valuation. This can come from a professional business appraiser, a formula set in your partnership agreement (e.g., a multiple of revenue or profit), or a good-faith negotiation between the partners.
6. What happens if the calculated buyout price is negative?
A negative result means the partner's share of the business debt is larger than their share of the assets (valuation + cash). In this case, the departing partner may owe the company money to be released from their liability.
7. Should I enter '0' for debt and cash if we don't have any?
Yes. If the business has no outstanding debt or cash on hand, you can enter '0' or simply leave those fields blank. The calculator will treat blank optional fields as zero.
8. Does this work for any type of company (LLC, S-Corp, etc.)?
Yes, the financial principle is the same regardless of company structure. However, the legal and tax implications of the buyout can vary significantly, so consulting with legal and financial professionals is critical.
9. Can I use this for a partial buyout (e.g., reducing a partner's stake from 50% to 20%)?
Yes. In that case, the "Ownership Percentage to Buy Out" would be the difference you are acquiring. For a reduction from 50% to 20%, you would enter 30% into the calculator.
10. Can the buyout be paid in installments instead of a lump sum?
Absolutely. The payment structure is a key part of the negotiation. This calculator determines the total price, but the terms of payment (lump sum, installments with interest, etc.) must be specified in your legal buyout agreement.
