Buying out your siblings: the price is the easy half

Two calculations get collapsed into one here. What your sibling's share is worth, and what the business can afford to pay for it, are unrelated numbers — and only the second decides whether the company is still trading in five years. The valuation is the easy half. The affordability forecast is the half nobody has been engaged to produce.

That gap is not a technicality. It is the mechanism by which sound companies are damaged during handovers everyone involved considered fair.

Two different questions, treated as one

"What is the share worth" is a valuation question. It has recognised methods, it produces a defensible number, and a fiduciary or tax adviser can answer it. "What can the business afford to pay" is a forecasting question. It asks what cash the company will generate over the payment period, how much of that cash the operation needs in order to keep generating it, and what is left for debt service. Different question, different method, different answer.

The two get merged because the process is built around the first. A valuation is commissioned, a number is agreed, lawyers draft a share purchase agreement, a payment schedule is inserted, everyone signs. At no point does anybody's mandate include asking whether the schedule is survivable. The lawyer is making the transfer valid and enforceable. The tax adviser is minimising exposure. Both are doing their jobs correctly.

The price is negotiated between two siblings. The debt service is negotiated with the business, and the business does not attend the meeting.

The buyout is paid for out of the money that runs the company

A buyout does not simply move shares from one name to another. It converts equity into a fixed obligation, and a fixed obligation is precisely what a company with variable revenue struggles to carry.

Equity is patient. In a bad year it absorbs the shock: no dividend, everyone waits. A payment schedule is not patient — it falls due in the bad year at the amount agreed in the good one. And every franc of it is a franc not spent elsewhere: not on inventory when a supplier offers a term discount, not on the machine due for replacement, not on the salesperson who was going to open the French-speaking market. The company keeps trading and quietly stops investing, which is a slower failure than insolvency and much harder to see from inside. Which is why the choice between keeping it in the family and selling is a commercial question before it is an emotional one: a third-party sale converts the asset to cash at once, while a family buyout leaves the asset in place and attaches a liability to it.

What the schedule looks like when a year goes wrong

Here is the arithmetic in full. Every figure below is illustrative — chosen to show the mechanics, not drawn from any study or any real company.

Take a company generating EBITDA of CHF 1,200,000. It needs CHF 250,000 a year of maintenance capital expenditure simply to keep operating as it does, and about CHF 50,000 goes into working capital as it grows. That leaves CHF 1,200,000 − 250,000 − 50,000 = CHF 900,000 of cash before any debt service. I have left tax out, which flatters every figure below; including it makes each line worse.

Two siblings hold 50% each. The share is valued at six times EBITDA — an enterprise value of CHF 7,200,000 — and with no existing debt the departing half is CHF 3,600,000, financed at 3% as an equal annual annuity. Interest of CHF 108,000 divided by the annuity factor gives CHF 108,000 ÷ 0.2106 = CHF 512,800 a year over eight years, or CHF 108,000 ÷ 0.1374 = CHF 786,100 over five.

Illustrative debt-service test on a CHF 3,600,000 buyout at 3%. Constructed figures, not drawn from any study.

Scenario	Cash before debt service	Cover, 8-year term	Headroom	Cover, 5-year term	Headroom
Base case, EBITDA CHF 1,200,000	CHF 900,000	1.75×	CHF 387,200	1.14×	CHF 113,900
EBITDA down 15%	CHF 720,000	1.40×	CHF 207,200	0.92×	−CHF 66,100
EBITDA down 25%	CHF 600,000	1.17×	CHF 87,200	0.76×	−CHF 186,100

Read the two right-hand pairs against each other. Same company, same price, same interest rate. The only variable that changed is the term, and it decides whether a 15% year is an inconvenience or a default. Over eight years the business survives a 25% fall with CHF 87,200 to spare. Over five it cannot cover a 15% fall at all, and is CHF 66,100 short.

There is a second reading, and it is the one that damages companies quietly. Suppose the business also needs CHF 300,000 a year of growth investment to hold its position — a machine, a hire, a market. On the eight-year schedule the base case covers it, with CHF 87,200 left over; a 15% fall leaves CHF 207,200, which does not. On the five-year schedule it is never covered, not even in the good year. The company does not fail. It stops moving, for the length of the schedule, while its competitors do not.

The base case is not the test

Every buyout proposal I have seen models a base case, and the base case is always affordable. It has to be, or nobody would have put it forward. It tells you almost nothing.

The test is what happens to debt service in the year revenue falls 15% — and, more usefully, whether the business has ever had such a year. That is not a matter of opinion. It is in the accounts. Ten years of turnover and gross margin will show the worst year the company has actually lived through, what happened to margin inside it, and how long recovery took. A company that has never dropped 15% in a decade is a different proposition from one that has done it twice.

Time matters more here than it appears to. UBS and the Center for Family Business at HSG report that a management buyout takes around five to seven years, a family-internal handover around ten to twelve, and a sale to an outside party around one to two. A family transfer is not a transaction. It is a decade, and a forecast that must hold for a decade cannot assume none of those years is bad.

Why the tax valuation is not a price

In Switzerland many family buyouts are priced off the Praktikermethode, the tax valuation: (2 × earnings value + 1 × substance value) ÷ 3, set out in Kreisschreiben 28 of the Schweizerische Steuerkonferenz. It gets used because it exists, because it is cheap, and because both siblings can see that neither of them invented it.

It was designed to establish a value for tax purposes. Authorities apply it to unadjusted annual accounts at a uniform capitalisation rate which VZ VermögensZentrum describes as too low from an investor's perspective — appropriate rates for Swiss SMEs being more like 10% to 15%. Two things follow. Unadjusted accounts mean no correction for an owner's below-market salary, for property held at book, for a one-off year, or for the fact that the predecessor personally holds the customer relationships. And a capitalisation rate below what an investor would demand produces a higher value, because the two move inversely.

None of that makes the method wrong. It makes it a tax value. It is not a price, and it is emphatically not an affordability test — it never asks what cash the business generates or what the operation needs to keep generating it. Used as a purchase price, the number defining a decade of obligation was produced for a different purpose, by a method that deliberately ignores risk. A third-party offer usually comes in lower for exactly that reason. The gap is not an insult. It is a risk adjustment.

The two siblings are not in the same deal

This has to be said plainly, because the language of fairness obscures it. The sibling who leaves converts an illiquid asset into cash and walks away from the risk; their position afterwards is certain. The sibling who stays takes on a fixed obligation, keeps every operational risk, continues to work in the business, and runs it with less financial flexibility than before. Their position is a range of outcomes, and the bad end of that range is precisely where the obligation is hardest to meet.

A price both siblings genuinely believe is fair can therefore still be a price only one of them can survive. That is not bad faith. It is that "fair" is measured on the value of the asset, where the two are symmetrical, rather than on the risk attached to it, where they are not. The departing sibling is not unreasonable in wanting full value for their share. They simply have no reason to notice that the same number means something different on the other side of the table.

Which is why the terms often matter more than the price. Term length, a deferred tranche, an earn-out linked to actual performance, a payment holiday triggered by a defined fall in EBITDA — these adjust who carries the risk without either party surrendering value they believe is theirs. The table above makes the point: the same CHF 3,600,000 is comfortable over eight years and dangerous over five.

Why the family price is often worse than the market price

This is counterintuitive and it holds up. A third-party buyer conducts diligence and prices risk. They discount for customer concentration, for dependence on the outgoing owner, for a thin management layer, for margin that has drifted. Their offer arrives with all of that already deducted, and they finance it through a lender who runs an independent affordability test as a condition of lending. A family buyer typically pays a number derived from a tax valuation or from fairness between siblings, with no risk adjustment, and finances it from the company itself.

The Swiss survey evidence points the same way, though it must be read carefully. UBS and CFB-HSG's Nachfolgestudie 2026, Kurzstudie 03, surveyed 52 successor candidates. Fifty-two is a small sample, far too small to generalise from, so treat what follows as an indication rather than a finding. Within it, 71% expected a gift or an advance on inheritance, 29% expected a seller loan, and only 14% expected external financing — respondents could evidently name more than one route, but the shape is unmistakable.

14% of 52 Swiss successor candidates expected to use external financing, against 71% expecting a gift or an advance on inheritance. A small survey, and an indication only.

That is the central fact of this article. If the buyout is financed inside the family, no lender ever runs the affordability test — and the affordability test is the one thing a lender would have insisted on. The credit committee that would have asked what happens to cover in a bad year does not exist here, and nobody replaces it, because nobody notices it is missing.

The same study found 71% of those candidates had multiple potential successors in the family and 63% faced a mandatory-consensus requirement — the structural condition under which a price gets set by agreement rather than by analysis. An earlier Credit Suisse and CFB-HSG study of 153 completed Swiss handovers found 27% experienced open conflict during the process, and 44% said the company was strongly or moderately dependent on the predecessor: a dependency an outside buyer would have priced and a family buyer generally does not.

What this looks like in practice

The work runs in the opposite order to the way these things normally proceed, and that reordering is most of the value. It starts with the cash, not the price: normalised EBITDA, adjusted for below-market family salaries, one-off items and any rent paid or not paid on family-owned property. Then maintenance capital expenditure separated from growth, because the first is not optional and the second is where a buyout quietly consumes the future. Then the working capital cycle, since a business recovering from a downturn absorbs cash on the way up. What emerges is the real number: cash available for debt service, usually well below EBITDA and well above net profit.

Then the downside gets run before the price is agreed rather than after: falls of 15% and 25% in EBITDA, tested against the actual worst year in the accounts, with cover calculated for each. The output is not a valuation. It is a maximum serviceable obligation — the largest schedule this particular company can carry through its own historical worst year — and that figure, rather than the tax value, is what should discipline the negotiation.

Only then does price enter, and by then the conversation has changed. Instead of two siblings arguing about what is fair, there is a constraint belonging to neither of them: the business will service this and not that. In the Credit Suisse study, 72% of owners said they needed external support on tax, 60% on strategic preparation of the business and 59% on financial planning. Tax advice is both the most sought and the most available. The commercial question — can this company carry this schedule — is the one that goes unbought. Whether the business is worth taking over at all sits in the same set of numbers.

What cannot be settled from the outside

I cannot tell you what your sibling's share is worth, and I cannot tell you whether your company can afford to buy it. Both answers live in your accounts and nowhere else.

What would produce them is specific and finite. Ten years of turnover, gross margin and EBITDA, so the worst year the company has actually survived is a fact rather than a fear. Maintenance capital expenditure separated from growth. The working capital swing between a good year and a bad one. Customer concentration, because a buyout serviced from cash flow where one customer is a third of revenue is two risks stacked, not one. How much of the trading relationship sits with the departing sibling personally. And what the business must invest simply to hold its position, which is the line that disappears first and is noticed last.

Here is the uncomfortable part. Everyone in the process is competent, and nobody is asked this question. The fiduciary produces the tax value. The lawyer drafts an agreement that will hold up. The bank is often not involved at all, because these transfers are largely expected to be funded within the family. The auditor confirms last year. Not one of them has been engaged to say whether the schedule survives a 15% year — and in a family transfer running ten to twelve years, the question outlives every one of their mandates. The next generation inherits the consequence of a calculation that was never commissioned, and by then the terms are signed.