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 we consider this question and highlight some of the issues a management team will need to consider if thinking about making a bid for the business they work for.
Click here to view the first article, which looks at management buyouts from the business owner’s perspective.
Make your wishes known
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.
Current state of the business
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, account will be taken of all relevant circumstances, including:
- past performance and profitability;
- prospects for growth;
- assets base and cash flow;
- current and future debts and liabilities;
- outstanding disputes;
- operating costs;
- investment needs;
- sector opportunities and challenges; and