We want to sell to our internal leadership team but they do not have the capital, and we refuse to act as a bank with a high-risk seller note. What alternative structural financing models can we explore using our operational runway?

Question

Tyler Smith · Accepted Answer

Selling to an internal team without acting as a bank requires careful preparation. You must structure a transition that relies on the operational performance of the business rather than your personal capital or a risky seller note.

Start by looking at your V/TO. Your three-year picture must outline the exact financial growth required to support a leveraged buyout or an ESOP. The leadership team must understand that their future ownership is tied directly to their ability to hit these growth targets.

One effective model is to use a structured equity earn-in program tied to quarterly Rocks. As key leaders consistently exceed their targets, they earn equity pieces or profit-sharing units that accumulate over time. These units can then be used as collateral to secure third-party bank financing, such as an SBA loan, when the final transition occurs. This keeps your personal balance sheet protected.

To make this work, your leadership team must prove they can run the business without you. They must occupy the key seats on the Accountability Chart and run the Level 10 Meeting independently. When a commercial bank sees a leadership team that is already running a highly profitable, systematized business, they are far more likely to fund the buyout. This structure minimizes your risk while giving your team a clear, performance-based path to ownership.