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Use realistic estimates. Load examples to test quickly.
Example data table
| Scenario | Business value | Ownership % | Debt | Tax gross-up % | Buffers | Required coverage | Est. annual premium |
|---|---|---|---|---|---|---|---|
| Example A | 1,200,000 | 50 | 200,000 | 0 | 10% + 0 | 770,000 | 2,118 |
| Example B | 3,500,000 | 33 | 900,000 | 5 | 15% + 25,000 | 1,932,000 | 5,574 |
| Example C | 800,000 | 60 | 0 | 0 | 20% + 10,000 | 643,600 | 1,770 |
Examples use a premium rate of 2.50 per 1000, baseline policy type, and no premium tax.
Formula used
DebtShare = OutstandingDebt × DebtResponsibility%
TaxGrossUp = OwnershipShare × TaxGrossUp% (optional)
BaseRequired = OwnershipShare + DebtShare + Replacement + Guarantee + Closing + TaxGrossUp
Required = BaseRequired + (BaseRequired × Buffer%) + FixedBuffer + StructureLoad
TotalPremium = AnnualPremium × (1 + PremiumTax%) (optional)
Projected = Required × (1 + Inflation%)^Years
PV = Projected ÷ (1 + Discount%)^Years (optional)
Installment = amortized payment over years (optional)
Use buffers for valuation uncertainty, taxes, and transaction costs.
How to use this calculator
- Enter valuation and your ownership percentage for the buyout share.
- Add debt responsibility, guarantees, replacement costs, and closing costs.
- Use tax gross-up if payouts create taxable proceeds.
- Add percent and fixed buffers to reduce shortfall risk.
- Pick structure, policy type, and your premium rate estimate.
- Optionally add premium taxes, discount rate, and payout installments.
- Press Calculate to view results, charts, and scenario saving.
Coverage target and ownership economics
Partner coverage begins with a defensible enterprise valuation and the ownership percentage that must transfer under the buy-sell agreement. The calculator converts valuation into an ownership share, then adds transition items that regularly surface in real transactions. These include interim management, recruiting, training, and professional valuations. Using consistent inputs across partners helps align expectations and reduces negotiation friction.
Debt, guarantees, and continuity costs
Debt exposure can be overlooked, especially when liabilities are shared unevenly or backed by personal commitments. This tool separates total debt from the portion you may be responsible for, reflecting lender covenants or internal arrangements. It also captures personal guarantee amounts that could accelerate upon a triggering event. Adding replacement and continuity costs helps protect working capital during leadership change.
Tax gross-up and closing friction
Taxes and closing friction may reduce the cash actually available to complete the purchase. When proceeds are taxable or when transaction charges apply, an optional tax gross-up increases the ownership share to target a net funding amount. Legal and closing costs are added directly, covering documentation, filings, appraisal fees, and settlement administration. Modeling these items supports cleaner budgeting and more resilient funding plans.
Buffers, rounding, and scenario discipline
Uncertainty is unavoidable, so buffers provide a transparent way to manage risk. A percentage buffer scales with deal size, while a fixed buffer covers predictable one-time surprises. Rounding to common face amounts can match policy availability and simplify communication. The scenario saver encourages disciplined iteration, allowing teams to compare conservative, base, and growth assumptions without losing prior work. Review the sensitivity chart to see how valuation shifts affect the target, and revisit assumptions after major revenue, margin, or debt changes each quarter.
Premium view and payout planning
Premium estimates are derived from a user-supplied rate per 1,000 of coverage and a policy-type multiplier, producing annual and monthly views. Optional taxes and fees can be included to approximate billed cost. If the agreement allows installments, the calculator shows an amortized payment schedule using an interest assumption, which helps evaluate affordability, timing, and cash-flow stress under different funding approaches.
FAQs
1) What is partner coverage used for?
It estimates funding needed to buy a partner’s interest and keep operations stable. It combines ownership value with debt exposure, transition costs, and practical buffers.
2) Should I use entity purchase or cross purchase?
Both can work. Entity purchase is simpler administratively, while cross purchase can offer tax or basis advantages. Use your agreement and advisor guidance, then model both for sensitivity.
3) Why include tax gross-up?
Gross-up helps account for taxes or fees that reduce net funds available for the buyout. If your structure creates taxable proceeds, gross-up can reduce the chance of a shortfall.
4) How do I choose the premium rate?
Use an insurer quote when available. Otherwise, start with a conservative estimate and update later. The premium rate is applied per 1,000 of coverage to estimate annual and monthly cost.
5) What does the sensitivity chart mean?
It shows how required coverage changes when the business value rises or falls by set percentages. It highlights how valuation volatility can materially affect the recommended coverage level.
6) Is this calculator legal or insurance advice?
No. It is a planning tool for estimates and comparisons. Confirm assumptions, ownership terms, and tax treatment with qualified legal, accounting, and insurance professionals.