How to Use Your Severance Package to Buy a Business
You just received a severance package. Maybe it’s three months of salary. Maybe it’s a year. Either way, the conventional advice is the same: stretch it out while you job hunt, top up your emergency fund, and wait.
But what if your severance could do something bigger than buy you time? What if it could buy you a business?
Reframing severance as seed capital
Most people treat severance as a cushion to land on. But for the right person — someone with management experience, financial literacy, and the drive to be their own boss — it’s startup capital without the startup.
You’re not building something from zero. You’re buying an existing operation with customers, revenue, and systems already in place. Your severance helps you get in the door.
How much do you actually need?
One of the biggest misconceptions about buying a business is that you need hundreds of thousands in cash. In reality:
- Many small businesses sell for 2-4x their annual earnings (known as SDE — Seller’s Discretionary Earnings)
- Seller financing is common — the previous owner carries 30-70% of the purchase price as a loan
- Banks like the BDC (Canada) and SBA (US) have specific small business acquisition loans
- A typical down payment might be 10-30% of the purchase price
A business generating $150,000/year in owner earnings might sell for $450,000. With seller financing and an SBA/BDC loan, your out-of-pocket could be $50,000-$100,000 — well within range of a senior executive’s severance package.
The math most people don’t do
Consider two scenarios for a professional with a $75,000 severance package:
Scenario A: Job hunting
Spend 6-12 months searching. Burn through severance on living expenses. Accept a role at 20-30% less than your previous salary (this is the norm for 50+ professionals). No equity, no ownership, no exit strategy.
Scenario B: Buy a business
Use $50,000 as a down payment on a business generating $120,000/year in owner earnings. Keep $25,000 as a personal runway. Within 90 days, you’re drawing income from the business. Within 3-5 years, the acquisition loan is paid off and you own a valuable asset you can sell or pass on.
Which scenario builds more wealth over 10 years?
Practical steps to get started
- Don’t touch the severance immediately.
Take 2-4 weeks to recover emotionally and think clearly. The business-buying process takes months — there’s no rush.
- Get professional advice.
Talk to an accountant about the tax implications of your severance and the structure of a potential acquisition (Holdco vs. personal purchase). - Understand your total capital.
Severance is one piece. You may also have home equity, retirement savings (RRSP, 401(k)), or a line of credit. A clear picture of your resources determines what size of business you can pursue. - Start browsing businesses for sale.
BizBuySell, BusinessesForSale.com, and local business acquisition specialists will show you what’s available. You’ll be surprised what $50,000-$100,000 down can get you. - Read the playbook.
Own Your Next Job walks through the entire process — from valuation (the DCCF method) to making the offer (with real LOI templates) to operating the business from day one.
A word of caution
This isn’t for everyone. Buying a business carries real risk, and your severance may be your primary safety net. Don’t skip due diligence. Don’t buy the first thing you see. And don’t bet everything on one deal.
But if you’re a competent professional with decades of experience and a severance cheque that’s burning a hole in your pocket — the question isn’t whether you can buy a business. It’s whether you can afford not to consider it.