Our internal successor is highly capable and wants to buy the business, but they are asking us to carry a seller note for eighty percent of the purchase price over ten years. How do we compare the actual risk-adjusted return of this seller-financed buyout against a clean external asset sale on our exit runway?

Question

Tyler Smith · Accepted Answer

An internal buyout funded by eighty percent seller financing is not a true exit, it is a ten year high risk loan to a business you no longer control. If you accept these terms, you are tying your personal financial freedom to the operational performance of an owner who may struggle without your guidance.

To evaluate this path clearly, start with your V/TO®. Review your long term goals and your target enterprise value. If your primary goal is clean capital at close, a seller-financed note is highly risky. However, if you are committed to an internal transition, you must prepare the successor to earn the seat.

Use the Accountability Chart to transition daily operational decisions to the successor at least two years before the sale. They must prove they can run the Level 10 Meeting™ and lead the team to hit their weekly Scorecard targets without you in the room.

Next, work with an advisory team to structure a leveraged buy-out that uses bank debt rather than your personal balance sheet. The successor must bring some skin in the game, even if they have to secure a commercial SBA loan or bring in minority equity partners. Your goal on your exit runway is to drive down the seller note to a manageable portion, ideally under twenty percent, ensuring you receive the majority of your cash at close.