MBOS

MBOS - A cautious aproach - John Bissell
An MBO that didn’t work - EK.    November 2007
MBO support services.

MBOS - A cautious aproach - John Bissell

 

A good many of us dream of owning our own businesses and for most it remains just a dream,  The risks attached to leaving paid employment
and starting a business are just too great.  However, for some the
opportunity arises to buy all or part of the business they work for.  Known
 as a management buyouts this type of acquisition has grown in
popularity in recent years, but the buyout is not right for everyone.

If you are offered the opportunity to do a buyout you should think carefully
about the following:

1.  Buyouts have to be funded.  Managers can sometimes borrow the funds needed, but this can leave the business overloaded with debt post-acquisition and heavily endebted businesses are vulnerable if profits fall.  Alternatively, managers can seek funding from an equity partner (a venture capitalist, private investor or ”business angel”) however this type of funding can prove expensive in the long-run and equity investors will demand a share in the business and a say in it’s management.  In all cases investors will be more receptive to managers who offer to fund part of the cost of acquisition  themselves. But, managers who invest their life’s savings take a big risk as not all buyouts are successful and the managers are usually the last in line to receive anything back if the business fails.

2.  Owners are often the driving force in the business and managers should never underestimate the impact that they have.  If the owner has been active in the business it is imperative that the managers plan to replace that expertise post-sale.

3.  Owning a business is very different to working in one.  Ownership doesn’t end at 5pm and anyone contemplating an MBO needs to be prepared to work long hours and to have some sleepless nights.  Running a business can rapidly turn from a dream to a nightmare.

4.  If several managers affect a buyout together it can lessen the financial burden and create a strong team, but it can also lead to an ineffective and ponderous  style of management.  Going it alone can be risky, but at least you get to take the important decisions.

If you are still keen what should you do next:

A)   Sit down and talk the whole process through with the owner and ask them to help you to put together an initial business plan.
B)    Talk to anyone and everyone who you think can be of help. Bank managers, accountants and anyone who is already in business will be able to give invaluable help and advice.
C)    Decide how you will fund the buyout and then talk to specialists who can guide you to sources of finance.  With smaller deals the bank manager can often guide you to the appropriate department, but for larger buyouts there are specialist financial experts who have the ear of corporate financiers.
D)    Sit down and think long and hard about what you are doing.  Many buyouts fail because the managers don’t have the skill set or the drive to run a successful business.  If you have serious doubts ownership may not be for you.
E)    Contact John Bissell via http://www.lba-info.co.uk for an independent idea of the range of  value for what you are being offered!

 

An MBO that didn’t work - EK.    November 2008

I was head hunted into a role which at first looked an incredible opportunity.   The quoted company was wanting to focus more on specific areas, and so was divesting a highly profitable division, and gave me the opportunity to lead an MBO.  After a few months it became apparent that the profits were low quality and were coming from very aggressive sales techniques which lacked integrity to say the least, and I was unwilling to support the projections and give the  assurances necessary to the VCs who had been lined upto back the VC.   Anyhow they wanted rid of me then, and as I had a good long notice period, I had a lot of time in the garden.   I now am a significant shareholder in a rapidly growing recruitment business as MD.   

 

MBO support services.

When you run an MBO, the more you are able to focus on operations, the less chance of things going wrong.   Ahead of an MBO considering outsourcing the accounts to a company such as hydrafm.co.uk, IT sevices to www.firstchoice.org.uk and recruitment to of course cody!