When the time comes to move on and sell the business, there are a few options that are available to you. It is important to take your time to find the right option so that you know that you are leaving the company in good hands.
Often, instead of a trade sale and finding an external buyer, you will find that a management buyout is best where the management team buys out the current ownership.
So, when might a management buyout be the best option?
Obviously, strong management will be essential if you decide to go with a management buyout. You need to have a management team that will be able to handle the responsibilities of ownership and have the skills required to operate at a senior level.
One of the biggest benefits of a management buyout is that they will already have strong knowledge of the company, which will make the handover much easier.
Strong Cash Flow
When you opt for a management buyout, you want to make sure that cash flow is strong. There will always be some teething issues when changing hands, especially if the management team has no experience of ownership.
Additionally, strong cash flow will allow the debt taken on for the buyout to be repaid and ensure that there is money available to invest in the business.
Following on from this, a management buyout can also be a good option when the company has potential for growth. Management will need to borrow money in order to buy out the current owner(s) and getting approved will be much easier if they can prove that the company has the potential for higher levels of success.
Similarly, management are more likely to get approved for funding if the business is in an industry that is strong and stable. Companies that are in mature industries, competitive industries or risky sectors will find it much harder to get approved for funding, so this is another key consideration when thinking about a management buyout.
It will also be much easier for management to obtain funding if the company has USPs that help it to stand out from the competition. USPs are key to success in competitive fields and should ensure that the company finds continued success no matter who is at the helm.
Selling the business to management as opposed to a trade sale is often the preferred option when ownership decides to move on. The above are all factors that indicate that a management buyout could be the right option for your business.