Effective management buyouts (MBOs) often begin with participants of the management team believing that they know the business better than anyone, which, in many cases, is true. This thought evolves into an actual process of planning that could result in ownership of the company. The process, however, is quite difficult, and it is important to know all the steps of the process before you begin such an endeavour. 

From idea to ownership: the MBO process

  1. Before even beginning the process of an MBO, you need to consider all parts of the situation. Think about how badly you want to do this. Is it worth the large dedication of time and money it will require? Would you be suited to business ownership? You must also consider the timing of the MBO; you need to find a time where you have the lowest risk and the business has the highest incentive. The right climate for deals changes often so you should be aware of when the best time is and how it may be fleeting. Lastly, are you willing to go through the MBO by yourself, or would you be better off by including more members (perhaps other members of management)? These are only some of the necessary questions to ask yourself before getting attached to the idea.

  2. Once you have set on the idea of an MBO, you need to create a business plan that is comprehensive and includes all steps of the process. In doing so, you will more easily garner financing, as well as setting yourself up for success once you gain ownership.

  3. You need to secure a corporate finance advisor who will be present for the negotiations and deals. It is awkward enough as it is to discuss an issue with your boss, but discussing an MBO with the owner of the business you work for can constitute a whole new level of difficulty. A corporate advisor will minimize this stress, maintain professionalism and fairness, and help formulate the deal. By setting out specific parameters of the deal, such as transfer dates, payment amounts and methods, and responsibilities of both parties, the advisor is an asset to your MBO.

  4. Make sure to allow for enough time to raise finance. Financing is a difficult thing to do, and it is easy to take the first offer that comes your way. Make sure you remain diligent in your analysis of deals and wait until the perfect offer comes our way. It is better to wait for a great deal than to settle for a worse deal and be stuck with it for years. 

Make sure you find the right corporate finance advisor for your situation before you begin

You and your corporate advisor are going to work together extensively, and they will be trusted with important responsibilities and information. Make sure you find the right corporate finance advisor for your situation before you begin. Reach out today to find your perfect advisor!

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