Leveraging a “Lever-Up, Cash Out” Strategy
Let’s be honest—your business might be thriving. But you? You’re struggling to sleep because all your resources are tied to the company’s success. This overreliance on wealth is common: a founder establishes a successful business, and over time, that business accounts for 90% or even 100% of their net worth. This isn’t unusual. It makes sense, particularly in the early years, when your primary focus is on reinvesting everything back into the company.
But eventually, you begin to wonder: Is there a way to take some money off the table without losing control or walking away completely?
The default response for many founders is to sell their business, either partially or entirely. But here’s the truth: selling isn’t always the ideal path, especially if you’re not ready to leave or considering passing the company on to your children.
And partial sales, where you only sell a minority stake in the business while retaining at least 51% control? They can be trickier than they appear. If someone is willing to write a big check for a minority stake, they will almost always seek some level of control—board seats, veto power over major capital expenses, hiring decisions, you name it. Those conditions are real, and they are enforced more often than you’d like.
So, what are your options?
Consider a “Lever-Up, Cash-Out” Transaction
Some owners hesitate because they’ve never taken on debt and pride themselves on running a debt-free operation. However, this isn’t about risky leverage; it’s about responsibly accelerating your access to future profits. You’re not borrowing against receivables or inventory; you’re borrowing against real, demonstrated profitability. This move is strategic, responsible debt—something any well-performing business can manage. Think of it as advancing two or three years of earnings to yourself, then paying it back over time. This cash extraction allows you to diversify your wealth and reduce your personal financial risk without surrendering operational control. We’ve seen CEOs employ this strategy multiple times over the course of a decade, all while remaining fully in charge of the company they built.
Here’s the strategy:
1. You go to a bank and take out a loan against the business.
- Let’s say your business generates $100 million in revenue and $20 million in EBITDA (earnings before interest and taxes).
- You borrow $40 million—approximately 2x earnings, a level with which most banks feel very comfortable.
- You distribute that money to yourself as a dividend.
2. Use future profits to pay the loan down over 3–5 years, particularly if you are growing.
- No changes to the board structure.
- No new investors telling you what to do.
- It requires regular check-ins with your lender to ensure the business continues to perform well.
3. Then do it again.
- If profits increase, you can take more off the table in a few years.
- Some CEOs have done this three or four times throughout their companies’ existence.
4. Meanwhile, you diversify your wealth.
- Consider investing in uncorrelated assets, such as stocks, real estate, water rights in Colorado, or timberland—whatever piques your interest.
- Create a cushion.
- Sleep better at night.
Why This Works (and When It Doesn’t)
This strategy works only if your business is profitable and stable. If your profit margins are thin or your growth is uncertain, banks won’t take the risk, and they shouldn’t.
Structural debt differs from factoring receivables or obtaining a line of credit; those are working capital strategies. What we’re discussing here is debt supported by actual profitability.
Think of it this way: You’re accelerating years’ worth of profits into your hands today. It’s not free money, but it’s smart money, because it allows you to enjoy the fruits of your labor while keeping your hand on the wheel.
Key Advantages of a Lever-Up Cash-Out Strategy
- You don’t have to sell your business to withdraw money from it.
- Most minority sales come with conditions—be sure to read the fine print.
- Cash-out transactions through a bank loan (2–2.5x EBITDA) enable you to retain control and diversify your assets.
- You can repeat the process every few years if profits permit.
- If you are profitable and disciplined, this may be the best-kept secret in succession planning.
So, if you’re a founder lying awake at night wondering whether your entire personal net worth is tied up in your business, take a breath. You don’t have to sell. You can cash out and still be involved.
