Working in a big and successful company makes you always strive for more, so you ask for a well-deserved raise, wish to bring in more clients and try to be the best employee you can. However, sometimes this just isn’t enough for you and your peers, so you decide to do something even bigger. A management buyout, for example, is quite common nowadays and it involves a group of managers who decide to purchase the business of the company that currently employs them. Thus they become owners, which is always good.
If you’re interested in making such a change, here’s a quick guide to financing this complex operation.
1. Don’t Make the Decision Lightly
Buying out a company is neither easy nor cheap, and you have to be absolutely sure this is something you’re willing to try. The reasons why people go into this venture in the first place are rather simple to understand – they’re either not happy with their current position and feel like they can’t make enough progress, or feel that they can make a significant change in the company and prove to be better at managing it than the current managers are.
No matter what your reasons are, you must make sure this is the right move for you and your management team; so, don’t make any plans until you’re convinced. Also, make certain you’re surrounded with a trustworthy group of partners. Going into a business venture with your friends is exciting and fun, but only if done properly.
2. Obtain the Necessary Financing
Once you decide to go for it, you must find a way to finance the buyout. Some of the most popular options you can choose from are obtaining funds provided by the new management team, and seller financing. In the former option, those making the purchase provide the needed financial support with their own personal funds, mortgages and assets. In the latter scenario, it is the seller who finances the buyout using a note with a certain period of amortization, which means that the management team doesn’t have to appeal to the bank for funding and hence has a much easier job.
If, nevertheless, these options don’t seem to work for you, there are a few other ideas you can explore. The most obvious one is a classic bank loan: even though it’s sometimes hard to get it, it’s a great way to collect enough money in a short period of time. Alternatively, you can cover the expenses by partially assuming the liability of your company – this might put you and your partners in some danger, but it’s another effective choice. Finally, you can always try to find a way to obtain some private capital from a private equity firm as this has proven to be one of the safest ways to finance a management buyout.
3. Mistakes to Avoid
After you’ve set your plans in motion, it’s time to think ahead and make projections. The most important thing is not to lose momentum and make mistakes. For instance, check whether your business is over-leveraged – if you discover that it is, you’ll be having more financial troubles than expected, so make sure you’re buying out a successful enterprise.
Also, when considering financing options, avoid operational financing. Even though it may seem safe and sound at first, it usually proves to be risky. Ultimately, this idea can lead to over-leveraging the company even more, especially with already financially unstable businesses.
The most important part of a management buyout is preparation – don’t make any moves until you’ve made sure you have enough funds, support from your management team, and trustworthy and professional people around you.
Like this post? Subscribe to my RSS feed and get loads more!