A management buy out (also known as an MBO) is where a business is disposed of by the shareholders (parent company or principal owner) to the management team already working within the business.
The management buy out is typically viewed as a process more aligned with larger organisations, but can also be appropriate for small businesses too. For example, if there is a disagreement amongst senior management or a partner is keen to step away from the company.
This is an extremely common method of exit for business owners and can be the end result of a long grooming process to get an individual or a team ready to take over the reins of a company.
How do I prepare for an MBO?
As a potential vedor, you should be looking to put in place tight controls and systems as well as a more rigid management team structure. This should be implemented with a view to making your exit a gradual one, on terms of developing responsibility over a period of time so that the company is less dependant upon you as an individual and more reliant upon the systems and team that you have implemented.
This is particularly important in the case of convincing potential funders to a transaction that the company is safe to lend to and is generally good practice for all business owners planning an exit.