Is a management buyout the right business exit strategy for you?

With talk of Capital Gains Tax (CGT) increases in this month’s Budget, it may be advantageous for many business owners considering a sale to do so before any changes come into place. 

One option that is gaining attention is the management buyout (MBO), where the existing management team takes ownership of the company. 

An MBO can be an attractive route as it keeps the business in familiar hands and ensures continuity.  

The management team already knows the ins and outs, so disruption is minimised.  

However, like any business transaction, an MBO is not without its challenges. 

Benefits of an MBO 

One of the primary advantages of an MBO is continuity.  

Since the management team already runs the business day-to-day, the transition is smoother, reducing uncertainty for staff and customers.  

This is particularly valuable for businesses reliant on key relationships or specialised operations, where knowledge transfer is important. 

There is also the matter of motivation.  

When a management team becomes owners, they have a direct stake in the company’s success, which can drive stronger leadership and a more focused approach to growth. 

Challenges to consider 

However, funding an MBO often involves a mix of debt and equity, which can put financial pressure on the new owners.  

Bank loans and personal guarantees can increase risk, especially if the business faces unexpected hurdles like rising costs or economic downturns. 

Tax is another key consideration.  

Business Asset Disposal Relief (BADR) currently reduces CGT to 10 per cent on qualifying gains up to £1 million, but changes in the Budget could see CGT aligned with Income Tax, potentially doubling the tax bill for higher-rate taxpayers.  

If BADR is removed altogether, the financial benefits of an MBO could be reduced. 

Is an MBO the right move? 

An MBO can be a smart exit strategy, particularly if the management team is well-prepared and the financials make sense.  

It is a way to ensure stability and reward the team that has been instrumental to the success of the business.  

Potential tax changes on the horizon need to be considered with an MBO, as timing is everything. 

If you are considering an MBO or need advice on structuring the sale, contact our team today.  

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