Should you sell your business internally?

14/11/2022

Your staff hold your business together. So, rather than actively marketing your business, you can save yourself time and money by allowing your employees to buy you out.

There are different options for this, such as through an Employee Ownership Trust, a management buyout (MBO) or a buy-in management buyout (BIMBO).

You need to be aware of how these will impact the sales process and which option is best for you.

What are the positives?

Think back to what you want for your business. You’ve put a lot of time and effort into your business, so you’ll want it to continue to thrive.

Your employees know your, and the business’s, values well. So, if you want your business to continue your legacy, selling to your employees can support this.

Also, selling to people who are familiar with the business will facilitate a smooth transition.

They already know the procedures and the clients, so the handover process will be less strenuous.

Clients will also be more likely to accept a new owner if they already have a relationship with them, which your employees will have.

What are your options?

Management buyout (MBO)

A management buyout (MBO) will allow your management team to acquire your company’s assets and operations over time, which usually leads to them taking full ownership.

For a large business, a management buyout can be a good way to gradually decrease your responsibility as you sell portions of your business off.

If you are looking to slowly phase out of your business and look towards retirement, this provides a great opportunity to do so.

If you are a serial entrepreneur and want to move on to your next venture, this won’t be the best option for you.

For an MBO to be successful, the management team need the leadership skills in place to take full control of the business, which takes time.

Buy-in management buyout (BIMBO)

A buy-in management buyout (BIMBO) can move things on more quickly than an MBO.

As stated, your current management team know the business well.

But if you don’t want to stick around until they are ready to take complete control, your existing managers can agree to buy the business with a group of external managers.

This can be a good solution to bring together the knowledge of how your business runs, and the skills and experience to effectively run a business.

Employee Ownership Trusts (EOTs)

Giving your employees an opportunity to buy into your business is a great way to boost employee morale and increase retention.

In an EOT, a trust holds the majority of the shares of your company, which can then be bought by your employees.

From the employees’ perspective, this allows them to have a say in how the business is run and they can benefit financially from the trust.

This option also provides you with a tax-efficient exit from the business. If you sell more than 50 per cent of the ordinary share capital of your business to an EOT, you will qualify for a Capital Gains Tax (CGT) exemption on any gains.

In our next blog, we will discuss selling your business to external buyers.

For advice on exit strategies, contact us.