Management buyouts
Oct 30, 2018
Management buyouts: a quick guide for the management team looking to buy-in
News & Blogs
Management buyouts: a quick guide for the management team looking to buy-in
The senior management team are the backbone of every business: they provide the vision, support and safeguarding needed for effective and efficient operation. But if you dream of becoming the boss, do you have what it takes to become a business owner? In the second of a three-part series of articles on management buyouts, Keith Hardington, Solicitor in the Business team at Walker Foster, considers this question and highlights some of the issues a management team will need to consider if thinking about making a bid for the business they work for.
If the current owner is approaching retirement age and has not yet discussed their long-term plans, then do not be afraid to raise the issue at your next review or informally when the opportunity arises.
If they are set on a trade sale, then at least you know where you stand. However, if they are receptive to the possibility of a management buy-out, then you can start to work together to develop a succession plan.
You may not have given much thought to how all the main functions of the business are currently managed and resourced, but as a business owner you need to take responsibility for finance, operations, sales and marketing, human resources and business development. You also need to think about potential candidates capable of assuming the role of managing director.
If there are gaps in the management team which will hinder your ability to ensure the effective running of the business, then these will need to be plugged. If you identify the need to upskill, then this is something that will need to be addressed through the training and mentoring of existing staff or the recruitment of new personnel.
Proving that you have the right people in place to take the business forward will be an important consideration for any lenders you approach to help finance the deal. They will expect you to have thought about this and to have detailed it in your business plan.
It is often said that it is better to have a poor business with a good team of managers, than a good business with a poor team of managers. While this may be true, it is still important that you understand the current state of the business and whether, by buying it, you will be seizing hold of a golden opportunity or a poisoned chalice.
As the existing managers, you are likely to have a feel for how things are going generally, but there may be issues in the background that you are unaware of. It is therefore important that you involve a corporate lawyer at an early stage so that appropriate investigations can be made.
The price you agree to pay for the business will be dependent on a number of factors, including its current financial health and the degree of risk you will be assuming by acquiring it.
An independent valuation will need to be carried out to determine how much the business is worth and whether there needs to be any discount applied, for example to reflect the fact that you will take over responsibility for certain debts and liabilities.
In carrying out this valuation, the account will be taken of all relevant circumstances, including:
For help with a management buyout, or any other corporate transaction, please contact Keith Hardington or any member of the Business team on 01756 700600 or kh@walkerfoster.com
It is worth investing time and effort to ensure that your business is presented as attractively as possible before you start to market it to potential purchasers.
If you have made the decision to sell your business, early preparation is recommended.
“Buyer Beware” is the warning that should be heeded when buying assets from an insolvent company.
If you are exporting goods or supplying services abroad or you are seeking to develop your business overseas then we urge you to contact UKTI.
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