A BUYOUT IS A BALANCE SHEET EVENT.
A buyout does three things at once and only one of them is obvious. Cash leaves, either at closing or on a note, and it leaves on a schedule that has nothing to do with when your jobs pay. Equity falls by the amount paid, so debt to equity rises even if you borrowed nothing, and a surety reads that ratio before it reads your work history. And bonding capacity is sized off working capital and equity, so a buyout funded out of the operating account can shrink the program in the same month you're trying to grow into it. The valuation method and the deal structure are separate questions, and the second one belongs to your attorney and your CPA.
This comes up most often between $3M and $8M of revenue, when two co-founders who built the thing together want different decades. One wants to grow and take the bigger work, the other wants to slow down and take the money out, and both positions are reasonable. What breaks is agreeing the number before anybody works out what paying it does to the company's ability to bond and mobilize the next job. Settle it in that order: what the business can carry, then what the departing owner is owed, then how the deal is written.
WHAT IT MEANS.
A partner buyout is the purchase of one owner's equity by the company or by the remaining owners, which converts a share of ownership into a cash obligation and reduces equity by the amount paid.
There's also a case of this that has nothing to do with a disagreement. A buy-sell agreement funds the purchase of a partner's shares on death, disability, or departure, and if the company is the buyer then it's the company's balance sheet that funds it. A buy-sell with no funding mechanism behind it's a promise to write a cheque the business may not be able to write, which is a document to review with your attorney and your insurance agent well before it's needed.
The other thing worth knowing early is that your surety and your bank will find out. A bonding program is renewed off statements, and equity dropping by a six figure sum with no operating explanation is the first thing an underwriter asks about. Telling them before they read it turns a surprise into a plan, and underwriters are far more comfortable with a funded buyout they were walked through than with one they discovered.
WHERE THE DEAL HURTS THE COMPANY.
The number gets agreed before the funding does
Two owners settle on a price because it feels fair, then find out what paying it does to the operating account. Cash for a buyout competes with mobilization, payroll, and material buyout on the same Friday, and the buyout is the only one of the four with a fixed date on it. The affordability test has to run before the price is agreed, not after.
Equity falls, so the ratios move against you
Paying an owner out reduces equity by the amount paid, which raises debt to equity even if you borrowed nothing to do it. Fund it on a note and equity falls anyway while liabilities also rise, so the ratio moves twice. The CONTROL standard puts debt to equity below 1.0, and a buyout is one of the few single events that can push a healthy company through it in a month.
Bonding capacity contracts at the worst moment
Sureties size a program off working capital and equity and read it off a work in progress schedule and a statement. A buyout takes cash out of working capital and takes the payment out of equity, so the program can tighten in the same quarter the remaining owner is trying to take on the larger work that motivated the split. That's the failure that turns a clean exit into a stalled company.
WHAT IT LOOKS LIKE IN DOLLARS.
Take a subcontractor with $900,000 of equity and $700,000 of total liabilities, so debt to equity reads 0.78. Buy a partner out for $300,000 in cash and equity falls to $600,000 while liabilities stay at $700,000, so the ratio reads 1.17. Fund the same $300,000 on a five year note instead and equity still falls to $600,000 while liabilities rise to $1,000,000, so the ratio reads 1.67. Every figure in that example is illustrative arithmetic rather than a benchmark. The point is that the ratio moves through the CONTROL ceiling of 1.0 under both structures, and the cash timing is the only thing that differs.
The CONTROL standard on the balance sheet is working capital at 10 to 15 percent of annual revenue with 13 percent as the number to build toward, a current ratio between 1.3 and 2.0, and debt to equity below 1.0. A buyout moves all three in the wrong direction at the same time. Working that out before the deal closes is the difference between a structure the company can carry and one that costs you the bonding program you were trying to grow.
THE ORDER THIS HAS TO RUN IN.
We model what the company can carry first, across cash, working capital, the debt to equity ceiling, and the bonding program, then that becomes the envelope the deal has to fit inside. It reverses the usual sequence on purpose. Two owners negotiating inside a known envelope reach a deal the business survives, and two owners negotiating in the abstract reach one it may not.
A lump sum, a note over several years, and a note with a balloon all read the same in a summary and behave completely differently in a cash week. Each structure gets run through the 13 week forecast against the real job billing and payroll calendar, so the payment date is chosen against a cash trough rather than into one.
We put the numbers in front of the underwriter and the banker with the funding plan attached, before the statement that shows the equity change reaches them. Bonding programs and credit lines tighten on surprises far more than on bad numbers, and an underwriter walked through a funded buyout usually holds the program.
The purchase agreement, the entity consequences, whether the company or the remaining owners are the buyer, and every tax question inside the transaction are legal and tax work. We don't do either and we won't pretend otherwise. What we bring to that table is the arithmetic on what the business can carry, in the format your advisors need to structure against.
THE OUTPUTS, NAMED.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
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