We want to transition our business to our management team internally, but they do not have the capital to buy us out. How do we structure a seller-financed buyout over a five-year runway without starving the company of operational cash flow?

Question

Tyler Smith · Accepted Answer

An internal transition is a powerful way to preserve your legacy, but it requires a disciplined multi-year framework. If your management team lacks capital, you must begin a phased transition five years out. Start by selling small tranches of non-voting equity to key members who meet the GWC criteria for future ownership. Use a structured seller note combined with bank financing. The leadership team can use the company's distributions to pay down the seller note. To keep the business healthy, you must cap these annual distributions so you do not starve the company of working capital needed for operations. You must also adjust your V/TO to reflect this long runway. Ensure the leadership team is running the Level 10 Meeting autonomously. This proves they can manage the debt service and maintain operations without your daily supervision. If they cannot run the company without you, a bank will not fund the transaction and you will remain tied to the business.