If You Want to Sell Your Lifestyle Business, Should You Consider an MBO?
Across the country, many baby boomers are sitting on a successful and profitable lifestyle business. They may have built the company up over the years so that it operates like a well-oiled machine, and in a situation like this, they may often be reluctant to let go of the reins. Yet with advancing age come other opportunities, and a less frenetic life may be more attractive. If you find yourself in this situation, you will certainly be thinking about your options, so if you want to leave the company in good hands going forward, what can you do?
Voluntary Liquidation
Faced with a situation like this, there are, realistically, only three choices. To begin with, you can enter into voluntary liquidation and shut everything down, but for many people, that is furthest from their minds. After all, they want to protect their legacy, keep existing customers happy and safeguard their staff.
Selling to a Third Party
You can certainly put the business up for sale and try to find a suitable buyer. This requires careful planning, and you will want to be sure that the incoming owner will carefully look after your business.
Selling to Your Managers
Alternatively, you can think about a management buyout (MBO). As the name implies, you will entrust the company's future to people you already know and who may, in any case, do most of the donkey work now. You must have a solid, second-tier management team in place if you want to sell to a third party anyway, so why not give them the opportunity to take over instead?
MBO Options
In this case, there are several different ways to proceed. You could give the team full responsibility and step away with a clean break, or you can maintain a minority stake as part of a partial MBO. Alternatively, you can offer members of the management team an initial number of shares and set a future date for renegotiation. This is often known as a "split" buyout.
Creative Financing
Of course, there's always the matter of finance. Are the management team members in a position to raise the money necessary to buy you out? You can certainly be creative, and if you want to make this type of approach a priority, you might be able to refinance part of your company to release equity. Perhaps you can raise money against fixed assets or, if the profits are stable and repeatable, you may be able to raise what is known as a cash flow loan.
Expert Advice
Before you go any further, talk with a financial management accountant. They will help you to analyse your options and make sure that all your books are in good order, should you need to seek external investment to help you achieve your goals.