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Capital Ideas: Ways to Extract Cash From a Private Company Without Selling It

Entrepreneurs who want to get cash out their business without giving it up have a number of options that can be adapted to suit a wide array of preferences and circumstances.

The liquidity strategy must conform to the owner’s vision of a personal and professional future. ’You need to use a decision tree,’ says Holly Isdale, managing director in the wealth advisory team at Lehman Brothers in New York. ‘Do you want to grow the business, or just take out equity for personal use? Do you think you will eventually sell the business, or give it to your children?’

For those who want to keep their business closely held, the most straightforward option is to swap equity for debt – that is, have the company borrow money and pay the proceeds to the owner as a special dividend.

’If your long-term goal is to give the business to the children, then the load option is attractive since the family can simply tap into cash flow and repay the loan over time,’ Isdale says.