Looking to sell a business. Purchasers are employees. Traditional financing options (bank, SBA) have some negative aspects (for both). I’m not crazy about self-financing the deal, but would consider it. Other than just carrying the note, what are some other common considerations? Retaining a share of profit over a certain amount? Other ideas to incentivize early payment?
There are definitely some solid alternatives to straight up self-financing this employee buyout.:
One option is a seller take-back loan, where the employees pay you back over time. This gives you some cashflow while also being flexible for them.
Another idea is tying the purchase price to future performance through earnouts. This incentivizes growth, so you get more money when business is booming.
Keeping a small piece of the pie and getting profit sharing is a smart move. You get the upside without having full control.
A vesting structure could also work, where employees gain bigger equity chunks over time. This reduces risk on your end and gives them more reward as they hit goals.
If you want a smooth handoff while still generating income, you could manage the transition for a consulting or management fee.
Deferred compensation is another option, where you spread out your proceeds over an agreed timeline. This can also help with taxes.
There are plenty of ways to approach this situation. The right creative financing solution depends on your needs and risk tolerance. But the good news is, you have options beyond just self-financing.
Self financing in this market helps get you the higher end of the valuation and structured properly can limit your downside.