How to Buy Into a Business Without a Massive Lump Sum

Date posted: February 11, 2025
By Matt Liddle

Are you serious about business ownership but unsure where to start?
You’ve worked in the business for years—maybe even your whole career. You know the ins and outs, you’ve helped it grow, and now you’re thinking: “Why not own a piece of the business?”

If you’re a key employee or a family member looking to take over, buying into a business isn’t as simple as saying, “I want in.”
The good news is that there are ways to structure the deal, so you don’t need a massive cash lump sum upfront.

Planning for succession improves the likelihood of maximising business value, creating opportunities for employees, and ensuring the future of the business.
Here are my key takeaways from working with clients, key employees, and family members on their transition to ownership over the past 20 years.

4 Key Principles for Buying Into a Business (Without Regrets)

Aim to Secure the Full Deal Upfront – Even if ownership is staged, lock in a 100% agreement on valuation, timeline, and exit terms before you start.
Don’t Overpay – Get an independent valuation and agree on a fair pricing method now to avoid inflated costs later. Future growth should benefit you, not the seller.
Make Sure the Business Can Fund It – Structure payments so the business generates enough cash flow to support the buyout without strangling growth.
Shift from Employee to Owner Mindset – You’re not just earning a salary—you’re responsible for strategy, financials, and long-term success. Think like an owner from day one and invest in advisors who can help you plan, identify opportunities and manage risk.

The 3 Steps

Step 1: Understand Your Path to Ownership

Business owners don’t always hand over the keys overnight.
They often want to gradually step back, ensure a smooth transition, and ensure the business is in good hands.
That’s where you come in. If you can prove you’re the right person to take the business forward, you can structure a deal that benefits you and the current owner.

Let’s break down your options.

Step 2: How to Buy In Without a Huge Upfront Cost (Pros & Cons of Each Option)

Most next-generation owners don’t have hundreds of thousands (or millions) in cash to buy into a business outright.

I was recently helping a young employee who was targeted and offered the opportunity to buy into a retail business. The challenge was that they were asking for hundreds of thousands of dollars. It is an intimidating reality for someone who has only looked at the business from one perspective (an employee), not as a business owner with all the risk, commitment and responsibility.

In addition, he had never been exposed to business acquisition concepts and terminology, the legal aspects, or the steps to buy a business and negotiate the purchase. There was a big learning curve, and this created anxiety around what should be an exciting opportunity.

With advice and planning, there are ways to structure a deal that is financially sustainable and improves the chances of the succession opportunity’s success.

1. Vendor Financing – Buy Now, Pay Over Time

How it works:

Instead of needing a bank loan, the current owner (vendor) finances the sale themselves.
You agree to pay for your share of the business in instalments over time, usually using business profits.

Pros:

No massive upfront payment is needed.
Easier approval—no need to qualify for a bank loan.
Keeps cash in the business instead of borrowing from external lenders.
Allows for a smooth ownership transition while keeping the seller involved.

Cons:

The business needs to generate enough profit to support payments.
If the relationship sours, disputes over repayment terms could arise.
If the seller wants a clean break, they may not agree to vendor financing.

Example: How Vendor Financing Works in Real Life

Let’s say the business is worth $2 million, and you want to buy 30% ownership. Instead of paying $600,000 upfront, you:

Pay an initial deposit (e.g., 10% = $60,000).
The owner loans you the remaining $540,000, repaid over 7 years at a fair interest rate.
You use dividends or business profits to repay the loan.

Bottom line: You become an owner without needing a massive lump sum.

2. Bonus-to-Equity Swap – Use Your Hard Work to Build Ownership

How it works:

Instead of taking your annual bonus in cash, you convert it into shares in the business.
Over time, you build up more ownership without spending extra money out-of-pocket.

Pros:

There is no need for external financing or debt.
Great if the owner isn’t ready to sell a large share all at once.
Motivates you to improve performance since your ownership grows with business success.
It can be combined with vendor financing—your bonuses can help pay for your share.

Cons:

It might take a long time to build meaningful ownership.
If the business underperforms, your stake won’t grow as quickly.
You’re giving up cash bonuses, which could impact your financial situation.

3. Issuing New Shares vs. Buying Existing Shares – Which is Better?

Option 1: Buy Existing Shares from the Owner (No Dilution)

The owner sells you part of their stake directly.
The total number of shares stays the same.
Works well with vendor financing—you pay them over time.

Pros:

No dilution—other owners’ shares aren’t affected.
Allows for a direct, structured transition of ownership.
Can be more straightforward to negotiate vendor financing with the seller.

Cons:

You may need external financing if the owner wants a large lump sum.
Valuation can be tricky—if the business grows, you might overpay compared to issuing new shares.

Option 2: The Business Issues New Shares (Creates Dilution)

The company creates and sells new shares to you.
The owner’s percentage goes down, but they still keep value.
It is often used when the business wants to raise extra capital at the same time.

Pros:

The business gets additional cash if new shares are sold at a premium.
Spreads ownership more broadly, making the transition smoother.
You might pay less per share compared to buying existing shares, i.e. issued at a discount or valued separately to the goodwill and historical success over time.

Cons:

Dilutes existing owners’ control and voting rights.
It might require legal and tax structuring to avoid unintended consequences related to the rights of current and future shareholders, the taxing point of discounts, and the share issue.
If too many shares are issued, it could affect the business’s value, as earnings per share can drop, making the company appear less valuable. Also, share issues can be perceived as a weakness and suggest cash flow problems.

How it works:

The business gradually gives or sells shares to key employees based on performance or tenure.
The transition is structured over time, so ownership isn’t transferred all at once.

Pros:

Helps if the owner wants a long-term succession plan.
Reduces risk—you earn your stake over time rather than taking on big debt upfront.
Encourages retention and keeps employees committed to business success.

Cons:

You don’t get immediate full ownership—it takes years to build up.
Limited liquidity—you may be unable to sell your shares easily if you decide to exit.
The owner must be willing to implement and commit to the plan over time.
It can be complicated and expensive to set up.

Step 3: Protect Yourself & the Business

If you’re buying into the business, you need to get things in writing. A handshake agreement isn’t enough when ownership and money are involved.

Here are some agreements you’ll need:

A Shareholders’ Agreement – Outlines how decisions are made, what happens if someone leaves, and how shares can be bought or sold.
A Valuation Agreement – Defines how the business is valued, so there’s no dispute over pricing later.
A Loan Agreement (If Vendor Financing is Used) – Clearly states payment terms, interest rates, and what happens if payments are missed.
A Business Sale Agreement – Defines the sale terms, protects the buyer and seller, sets acquisition and transfer conditions and defines key variables for tax and legal compliance.

These documents protect both you and the owner, ensuring a fair and smooth transition.

Final Thoughts: How to Make It Work for You

Buying into the business you work for is possible—even if you don’t have a huge amount of cash. With the right structure, you can:

Become an owner gradually, keeping financial risk low.
Use vendor financing or profit-sharing to pay for your stake over time.
Set up a legal agreement to ensure a fair and smooth transition.

Are you thinking about buying into your business?
The sooner you start the conversation, the more options you’ll have.

Insights + Resources

How to Buy Into a Business Without a Massive Lump Sum