Succession Financing Starts With the Business After the Founder Leaves
A machine-shop founder wants to sell to two long-time managers in stages. They know the production floor but have not yet been responsible for pricing, customer credit, and replacing aging equipment. Each ownership installment needs room for those new duties.
Control and payment should move on a known schedule
Map when the managers gain voting control, customer and supplier authority, and responsibility for major purchases. Distinguish pay for the founder's actual continued work from payments for the shares; both may use shop cash at once. Legal and tax advisers should document ownership and compensation terms. A large seller installment with no authority to change prices would put the managers in charge of repayment without control over the margin that funds it.
Review existing debt covenants, customer consents, and any key-person dependence. A provider may need its own approvals, but the parties should settle the operational handoff rather than assuming money alone will make the founder replaceable.
Keep the presses running during the transfer
Forecast collections after materials, wages, ordinary debt, and maintenance of the older machines. Reserve for a press repair before assigning every surplus dollar to the founder. If one customer pays in 60 days but the next share installment falls in 30, the shop needs cash or a negotiated payment schedule, even though the order is profitable on paper.
The managers may afford an initial share purchase yet face a larger installment in two years. That event is not automatically refinanceable. Test a repriced key account or a machine failure before signing the later schedule. A lower purchase price, payment tied to retained earnings, or seller flexibility can be negotiated before the transition, subject to advice and provider terms.
The managers must build both operating skill and a reserve between purchases. An ownership schedule that drains the maintenance fund may leave them in control of a shop they cannot keep productive.
Use the ownership schedule, equipment reserve, and conservative collection case in the Funding Quiz. The managers need room to maintain the presses between share purchases.