We want to sell the business to our internal leadership team, but they lack the personal liquid capital to buy us out. How do we structure a management buyout using seller notes and bank leverage without putting our own retirement cash at risk?

Question

Tyler Smith · Accepted Answer

An internal transition to your leadership team is a highly rewarding way to exit, but it requires careful structuring to protect your financial security. Since your managers likely lack the liquid capital for a lump-sum purchase, you will need to utilize a combination of leverage and structured seller financing. A typical structure involves the leadership team securing a senior bank loan, often backed by a government program, for a portion of the purchase price. The remaining balance is funded via a seller note, which the business pays back over five to seven years using its ongoing operating cash flow. To protect your retirement proceeds from operational failure after you exit, you must ensure the company runs on a highly disciplined operating system like EOS. Before you hand over the keys, your leadership team must prove they can hit their numbers and run their Level 10 Meeting without your involvement. You must also include strict financial covenants in your seller note. These covenants should give you the right to step back into the business or regain voting control if key weekly Scorecard metrics or cash reserve levels drop below agreed thresholds. This structure allows your team to buy the company using its own earnings while protecting your financial interests.