What are the hurdles to be faced with an MBO?
The main challenges faced when selling a company to management employees at a company is agreeing on a sale price and organising financing. In these cases, the successors often have access to a very limited amount of financing. They therefore depend on a bank loan and a certain degree of goodwill from the owner.
Banks finance up to a maximum of 40 to 60 percent of the sale price, and when the company is being passed on to family members or internal management staff, many owners are prepared to lower the sale price by 20 to 30 percent. Nevertheless, successors often also require a loan from the selling party, which they will then be able to repay out of future profits after having repaid the bank loan.
Company owners have to determine early on whether they are depending on a high sale price to finance their retirement or whether they can lower the price and grant a vendor loan. A solid financial plan with a detailed income and asset forecast will show when they are dependent on which of their financial means, and how much the company sale must raise if they are to maintain their livelihood over the long term following the sale.