What are the steps in a management buyout from start to finish?

A management buyout is a sale to the people who already run the business. What follows is a walk through the steps in the order they usually happen. Real deals loop back and overlap, and each step involves decisions that belong to you and your advisers.

Talking and getting advice

The owner and manager start with an honest conversation about interest and timing. Then each hires their own lawyer and accountant. The owner’s advisers protect the owner, and the manager’s protect the manager. Sharing one adviser feels cheaper, but it leaves the person with the weaker position without anyone looking out for them.

Pricing and financing

A qualified professional prepares a view on the business’s value, and the two sides negotiate from there. The manager meanwhile lines up financing, which may include a lender, personal savings, partners and an arrangement for the seller to be paid later. Lenders will want documents, so gather the financial statements early. How managers fund a buyout covers the sources.

Letter of intent and diligence

The parties sign a letter of intent that records the main terms and confidentiality. The manager then checks the business’s records, contracts and obligations, even though she knows it well, because knowing the daily work is not the same as knowing the paperwork. Writing a letter of intent explains what it contains.

Closing and handover

The lawyers prepare the purchase agreement and the closing documents, and the money and ownership change hands. After closing, the owner usually stays on for an agreed period to help with customers, suppliers and staff. Plan that period ahead, and write down what the owner is, and is not, expected to do.