Financing Your MBO

by Startacus Admin

If an MBO is on the radar for your small business, these basic tips help clarify what exactly it is and how you can navigate the process

There are a number of options business owners have when they want to exit the company. By far the easiest option is a Management Buyout (MBO). 

So, what is an MBO and how can small businesses navigate the process? Here, you’ll discover everything you need to know.

What is an MBO?

An MBO involves the management team of a business buying out the owner. The main reason they are often used is when the company is switching to private in order to streamline their operations. 

The management team basically pools resources in order to buy out the business. There are several funding options available and each one should be carefully considered. The funding needed to cover the MBO is usually quite substantial. This means the management team will most likely need to acquire some level of debt. 

How can you fund it?

There are a number of ways to fund an MBO. You could use cash flow finance from Nucleus, a bank loan, asset finance and private savings.

Due to how many funding options there are, it is advisable to do your research. This will help you to see which option is best for you. Write down all of your options and discuss them with other team members. Remember, all members need to agree on the best way to fund the buyout as it impacts everyone.  

Things to consider

Before deciding whether an MBO is right for you, there are a number of things to consider. These include researching the feasibility of the buyout, being open with shareholders and investors and having a strong employee retention plan. 

You need to consider whether it is actually worthwhile investing in the MBO. After all, you’re going to be getting yourself into debt to fund it, so you need to make sure it is going to be worthwhile. This will include looking at accounts and assessing how the business is performing, alongside any potential growth opportunities. You’ll also need to convince your shareholders the MBO will be a good move for the business. You can do this with a well thought-out shareholders agreement. 

An MBO can be a great way to streamline a business and give management a stake in the company. However, there are a lot of factors to think about. Making sure you have adequate funding is important so always research your options before choosing how to fund the MBO.

 

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Published on: 28th October 2020