Small Firm, $25m in billing with 10 equity partners. 3 of these partners are over 55 and own about 50% of the firm. Each of the three has been very open about not wanting to work past 60. We have not had a significant equity position retire in over 20 years (since the founder of the firm). The problem is determining the valuation and payout formula. Any suggestions, or formulas that are somewhat standard? The Partnership has not been updated in a long time and is silent on this.

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This is so much more than typed fishbowl reply. I spent time at a firm of similar size and we had formulas which in my opinion were too rich for the older equity holders. The liability to remaining partners would have too much of a burden and a disincentive. We ultimately capped the value to these retiring partners. They didn't like it but agreed. Then we ultimately merged up before they retired and they received extra whixh turned out to be a mistake that once again burdened remaining partners.

I think younger/remaining partners have more power than they realize because without the remaining people, the value to retiring partners diminishes materially. It was a value lesson learned.

If you can try to DM me, happy to connect and share what I have seen and learned.

Good luck

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Buying out 50 percent of the equity partners in close proximity would seem to create a significant financial burden for the remaining partners and likely diminish opportunities for future partners. Not to mention other concerns. You’re probably looking at about a 1x revenue multiple. With 10 partners thats 2.5m x 3 or a $7.5m buyout. Depending on free cash flow, it may be time to start looking for a buyer.

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