Business Succession Planning: Management Buyouts

Business Succession Planning: Management Buyouts

An essential part of business succession planning is creating a roadmap for a smooth business ownership transition. If you want your successor to be familiar with the business, one of the options you have in business succession is the option of a management buyout. A management buyout not only ensures a smooth transition in leadership but also embodies a compassionate approach towards the legacy you’ve created.

What is a Management Buy Out 

Management buyouts (MBO) occur when a member of corporate management or the internal team purchases the business from the owner. A management buyout usually occurs when the current owner of a company is ready to retire, sell or divest their interests. The team who is interested in buying the company includes key executives and managers from the company who already have a deep understanding of your business’s day-to-day operations, market position and growth potential.

Understanding the Management Buyout Process

The structure of a management buyout can vary depending on the circumstances. Generally, there are two main management buyout options: a partial buyout or a complete buyout. In some cases, it may involve a complete buyout of the company’s shares or assets, or it can be a partial buyout where the management team acquires a controlling stake, and the owners still retain some ownership.

If you’re considering a management buyout for your small business, discuss your long-term goals with your accountant, lawyer, financial advisor, tax professional and banker. These outside professionals can provide valuable input as you identify a successor, navigate tax laws and work to preserve your wealth.

Management Buyout Financing

Financing for management buyouts can come from various sources, including the management team’s personal funds, loans, private equity firms or other investors. Often, the management team will contribute some of their own capital to demonstrate their commitment to the success of the buyout.

Is a Management Buyout Right for My Business?

An important part of succession planning includes identifying someone who is invested in your business’s success and has the skills and leadership qualities required. Ideally, your successor should be and become deeply familiar with all aspects of the business. Management buyouts eliminate the issue of unfamiliarity and are a great option for business owners who want to turn their company over to a team who wants to see continued success.

Business owners have several ways to step out of their company. Relying on the guidance of legal and financial experts can help you identify the best approach for your situation.

See the Future More Clearly

Business succession planning and management buyouts can have significant implications for your own goals. As you plan the next chapters for your small business, reach out to WesBanco for expert support.

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