Author: Sam Lew, Director, Debt Advisory, Heligan Group

Do you ever pause to consider how much value is tied up in your business? And, just as importantly, whether you really want to wait until a full sale many years from now to enjoy the rewards of everything you’ve built?

For many business owners, there are personal goals that don’t need to wait for an eventual exit, whether that’s travelling more, investing in property, improving quality of life, or simply gaining greater financial security. The question is whether some of the value in the business can be released today, without undermining its future or placing it under excessive financial strain.

For the right business, the answer can be yes.

The next, and more interesting, question is how this might be achieved. The honest answer is: it depends. Every business is different, shaped by its sector, operating model, growth prospects and management capability. There is no single formula, but there are some common principles that guide what may be possible.

In broad terms, businesses that are less reliant on physical assets, such as software, professional services or consultancy firms, are often able to support borrowing based primarily on their recurring profitability and cash generation. Asset-heavy businesses, such as manufacturers or infrastructure operators, tend to structure borrowing differently, with lenders placing more emphasis on the value of tangible assets and the existing repayment commitments attached to them.

The level of existing borrowing also matters, as do market conditions in the sector, the stability of revenues, and the quality of management information available. Some owners are comfortable taking on modest levels of borrowing to achieve strategic objectives; others prefer a more conservative approach. Risk appetite plays an important role.

When does releasing cash from a business make sense?

There are many situations where exploring this type of transaction can be helpful. The most common include:

• An owner or group of shareholders wishing to realise some of the value they have created, while continuing to own and run the business
• Facilitating the exit of one or more shareholders, allowing others to remain invested
• Supporting succession planning by enabling management to acquire an ownership stake

These scenarios often arise due to differences in age or retirement timelines, changes in personal circumstances, or shifts in strategic direction. In many cases, the underlying business remains strong, it is the ownership structure that needs to evolve.

What are the benefits?

Depending on the circumstances, introducing borrowing into the business can deliver a range of benefits, both strategic and personal:

• Owners can convert part of their paper wealth into real financial security, while retaining control and continuing to grow the business
• Senior shareholders may step back, partially or fully, creating opportunities for the next generation of owners or managers
• Shareholder disagreements can be resolved through a structured buy-out rather than prolonged conflict
• Transactions can be flexible, allowing for different outcomes for different shareholders, or a mix of cash payments and new equity for key individuals

How are these transactions financed?

There are several ways to fund these outcomes. Where an immediate cash payment is required, borrowing within the business is often the most practical solution.

Compared with approaches that rely heavily on ambitious growth targets, such as those often required by private equity investors, a more measured level of borrowing can typically be supported by the company’s existing cash flows. This reduces financial risk and avoids placing undue pressure on future performance.

Importantly, this approach can also preserve working capital within the business. Rather than using up cash reserves to fund shareholder changes, the company retains liquidity to support day-to-day operations and manage trading risks.