If you’re considering your exit options as the owner of an owner-managed business, a Management Buy-Out (MBO) could be a great fit. An MBO allows existing employees, typically the management team, to take ownership of the business, offering them a unique opportunity to shape their own future.

However, many MBOs fail to get off the ground due to avoidable missteps early in the process. To give your MBO the best chance of success, here are 10 essential tips.

Vendors Shouldn’t….

Talk about price at all in the early stages
Discuss any deal on company premises after the initial conversation
Give them any reason to think their jobs depend on it
Block anyone from joining the team – all who are at the same level should be given the opportunity

Vendors Should……

Think well ahead of time when structuring your business and ensure that there is a level of management below the founding team
Open discussions by giving each member of the management team a letter, rather than discussing it verbally. Less mistakes will be made & in this day and age, you have to be very careful not to breach employment legislation (ask us for a sample letter that’s been approved by employment lawyers)
Suggest that any MBO could be in the medium term (ie it’s not urgent)
Be prepared that the deal could be highly deferred and/or based on earnouts
Recognise that management teams are likely to be very nervous about the prospect and the risk, even if they are excited about the opportunity
Be aware that the ‘management team’ may take a while to be formed, as they discuss between themselves who is willing to be involved

Follow these tips and you’ll be off to a flying start!