Day 24

Choose your buyer wisely!

We often hear of management buyouts (MBO’s) but, in reality, it’s really difficult to make them work. In most cases the management buyout team have to borrow the funds, from a bank, to purchase the business and what this means, importantly, is that the bank is in control of the deal. As you know, banks want to take as little risk as possible (in fact, virtually none it seems nowadays) and the only way they can reduce their risk exposure is by under-valuing your business so that they need to lend as little as possible to the MBO team! So you’re unlikely to get the best possible sale price if a bank is involved in financing the deal.

Your ideal buyer will have cash reserves; they will have spotted a way in which, by buying your business, they can make much more profit from the sales you generate than you have been able to. This might be because they already have the infrastructure in place to strip out a good proportion of your overheads or because they can see how your product or service complements whatever they’re already selling; maybe they have a ready-made market for it in their own customer base.

Needless to say, it’s this type of buyer that you’re looking for. They’re much more likely to be willing to pay a high multiple of your existing profit and, from your point of view, which has to be good!