Five MBO Strategies Tailored for Small Businesses
Management Buyouts (MBOs) are popular ways for business owners to sell their companies to their own management teams. They are widespread in small businesses, where the management team is already familiar with the company’s operations and has a vested interest in its success.
This blog will explore five management buyout strategies tailored for small businesses.
- Traditional MBO
This is the most common form of MBO, in which the management team uses its funds or obtains external financing to buy out the existing owner. The management team takes on the roles of CEO, CFO, and other key positions and runs the company as a private entity. - Employee Stock Ownership Plan (ESOP)
An ESOP is a tax-qualified employee benefit plan that allows employees to become company owners. The management team can use an ESOP to buy out the owner, with the employees contributing to the purchase through payroll deductions. - Leveraged Buyout (LBO)
The management team obtains financing from outside investors to buy out the owner in an LBO. The company’s assets secure the financing, and the management team takes on the debt. This strategy can be risky, but it can also provide a significant return on investment if the company is successful. - Partial MBO
A partial MBO involves the management team buying only a portion of the company, with the remaining shares held by the existing owner. This strategy allows the owner to exit the business while retaining some ownership gradually. - Earn-Out
An earn-out strategy is where the management team agrees to pay the owner a percentage of future profits for a certain period. This strategy can be helpful when the owner hesitates to sell the company outright but is willing to take a reduced role in the business.
In conclusion, MBOs can be an effective way for small business owners to sell their companies to their management teams. By tailoring the strategy to the company’s specific needs, the management team can ensure a smooth transition of ownership and continued success for the business.
Sterling specialises in sourcing funding and advising on MBOs, guiding you through every step of the process from inception to execution. With our expertise and extensive network, we help you identify opportunities, structure deals, and secure the necessary funding to realise your vision.
Whether you’re a management team ready to take control of your destiny or an entrepreneur seeking strategic financing solutions, Sterling is here to help.
Contact us today to explore how we can partner with you to capitalise on change and drive your business forward.
