3 key considerations when planning a management buyout
Before moving forward with an MBO, here are three critical questions to consider:
1. Does the management team have the expertise to run the business?
For an MBO to succeed, the new owners must have the skills and knowledge to take over effectively. This isn’t just about ensuring a smooth transition – it also protects the seller, particularly if any of the payment is deferred. If key aspects of the business have been managed solely by the seller, the team may need additional training before taking full control.
2. What is a realistic purchase price, and how will it be financed?
Agreeing on a fair price is crucial, but just as important is deciding how the purchase will be funded. In some cases, the management team may be able to pay the full amount upfront, but often, a mix of deferred payments and external funding is needed. If external funding is involved, whether through loans or equity investment, understanding the terms is key. We’ll walk you through the options and help structure a payment plan that works for everyone.
3. What level of control does the seller need if payment is deferred?
If part of the purchase price is being paid over time, the seller may want to retain some control to protect their remaining stake. This could involve keeping certain decision-making powers until the full amount is paid. Finding the right balance is key. Too much control might discourage the management team, while too little could leave the seller exposed. We’ll help you strike the right balance to keep both sides motivated for a successful transition.
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