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Seller Financing

Scott Galloway explores seller financing as a viable method for business owners looking to transition their companies to employees. This approach allows employees to gradually take ownership through profits, providing ongoing revenue for the seller post-exit. Scott highlights the benefits of seller financing over other methods, such as modified buyouts or leverage management buyouts, which often involve significant debt for employees 1. He emphasizes the importance of identifying capable employees who can drive the business forward 2.

I'm going to sell or finance it. What does that mean? It means that 5-10 years post my exit from this business, you are going to give me 10% of revenues.

--- Scott Galloway

This strategy not only extends the seller's financial runway but also ensures the business remains in trusted hands.

   

Valuation

Determining the valuation of a small business is crucial when considering an employee buyout. Scott explains that valuations typically range from three to six times EBITDA or one to two times revenues, with employee buyouts often trading at lower valuations 1. He advises business owners to have honest conversations with potential buyers about these valuations and the mechanics of the sale 2.

Valuations in a smaller business usually are somewhere between three and six times EBITDA.

--- Scott Galloway

Scott also notes the lack of an active market for small businesses, making these discussions even more critical for a successful transition.