Leveraged Buyouts LBO: Get paid for predictability, not hype

You built this thing at a kitchen table with a stubborn streak. Now someone wants to buy it—using your own cash to pay you. That’s the quiet trick behind a leveraged buyout (LBO). It can be a gift or a grenade.

Get it wrong and you spend five years watching your legacy wrestle a pile of debt. Get it right and you walk with a clean win, your team stays intact, and the business keeps humming. Money is cautious, great companies are rare, and timing is brutal. That’s why this matters now.

What an LBO really is, in plain English

Most buyers don’t show up with a suitcase of cash. They borrow—often against the strength of your company—and use that loan to pay you at closing. After the ink dries, your company’s future cash pays the loan back.

If the company is steady, this works beautifully. The lender gets repaid, the buyer earns a return, and you get liquidity. If it’s wobbly, everyone suffers—fast.

An LBO isn’t magic. It’s a bet that your cash will keep showing up on time after salaries, rent, and everything else. The stronger and more repeatable that cash is, the better your terms.

When it works in your favour

Think of an LBO as a reward for predictability. The more reliable the company, the more a buyer can pay, and the more of that payment can be cash at close.

Signals that make lenders smile and buyers lean in:

• Recurring revenue with low churn; contracts beat handshakes
• Clean financials; three years of statements that match your tax returns
• Stable margins; no wild month-to-month swings
• Low capital needs; machines and tech that don’t eat cash every quarter
• A second layer of leadership that runs the day-to-day without you

If that’s you, you’re in the LBO sweet spot. If not, you can still get there with a few focused moves.

What price really looks like in an LBO

Price is only half the story. Structure is where deals live or die.

There’s the total price. Then there’s what you get at closing, what you roll into the new company, and what you might get later if milestones are hit.

• Cash at close: the check you take home.
• Rollover equity: the slice you keep so you ride the next chapter.
• Seller note: a small loan from you to the buyer, paid back over time.
• Earnout: a bonus tied to future results.

The more certain the cash flow, the higher the cash at close. The shakier the picture, the more the buyer pushes for rollover, seller notes, or earnouts.

Buyers (and lenders) also care about debt coverage. In plain terms: after normal expenses, is there enough cash to pay interest and principal with cushion? EBITDA is a proxy, but don’t drown in acronyms. Ask the real question: if a stranger ran the company next Monday, would cash still cover the loan without drama?

How to prepare, fast

You don’t need perfection. You need clarity. Clean truth beats messy potential every time.

Start here:

• Close your books monthly, on time, with a simple cash flow view any lender can follow
• Lock in your top customers with renewals and clear terms
• Separate owner perks from business needs; make the real profit obvious
• Document processes so the business runs without you; name a second-in-command
• Tidy contracts, leases, and licenses so diligence is simple

These steps do two things: they raise confidence in your story and reduce the odds a lender or buyer demands a discount. Confidence equals price. Simplicity equals speed.

The risks no one tells you about

Debt is a tool, not a villain. But it’s an unforgiving clock. If sales dip, the clock keeps ticking.

Watch for red flags:

• Customer concentration that hurts if one account leaves
• Seasonal cash swings that make payments tight in slow months
• Legal or tax issues hiding in the basement
• Forecasts that require you to work 80-hour weeks to hit targets

You can price around small issues. You can’t price around chaos. Bring problems into the light early. Buyers can handle bad news. They flee surprises.

Choosing the right buyer, not the loudest

This isn’t just a finance deal. It’s stewardship. You’re choosing who holds the keys after you leave.

Ask questions that cut to the bone:

• How do you treat teams in the first 90 days?
• How often have you missed debt payments in your portfolio?
• Will you invest for growth or squeeze for cash?
• Can you close without drama? Who are your real lender partners?
• Can I speak to founders you’ve bought—and not just your “nice list”?

A good buyer will be clear about what they need from you after closing—three months, a year, part-time, full-time. Set that up front. If they dodge, that’s a tell.

How to win the negotiation without posturing

You don’t need to play shark. You need to own your numbers, set your walk-away, and stay calm.

Decide your must-haves:

• A floor for cash at close
• A cap on your exposure in reps and warranties
• A clear timeline to transition out

Decide what you can flex:

• Rollover equity can be upside if you trust the plan
• An earnout can be fine if the metrics are simple and mostly in your control

Then keep the process moving. Momentum protects price. Silence invites retrades. Your job is to reduce uncertainty every week until there’s nothing left to doubt.

A quick myth to kill

LBOs aren’t just for private equity or giants. If your company throws off steady cash, there’s likely a buyer who can use debt to pay you fairly and keep the engine running. Size matters less than the rhythm of the cash and the strength of the team.

The one number that changes everything

Coverage. You are paid for predictability, not potential. In an LBO, consistent, clean cash beats a thousand slide decks. Make the cash easy to see, easy to trust, and you win.

Key takeaway

Your exit price mirrors how easy it is for a stranger to own your cash flow. Remove the mystery, and an LBO becomes a safe bridge to your next chapter—not a gamble with your legacy.

Reflective question

If you stepped away for 60 days starting next Monday, would the cash still show up on time—and would a lender nod with confidence? If not, what single fix will you make this quarter to change that answer?