If you are thinking about selling your business, rumours of rising Capital Gains Tax (CGT) in the next Budget might have you wondering whether now is the right time.
One option many owners are exploring is a management buyout (MBO).
An MBO involves the current management team taking over from the existing owners.
It is an attractive choice for both sides, often preserving the company’s values and culture, but, like any business move, it has its advantages and potential drawbacks.
Why an MBO could be the right choice
One of the key benefits of an MBO is the seamless change in leadership.
The management team is already familiar with the inner workings of the business, which reduces the chances of disruption for employees, customers, and daily operations.
Whether you run a manufacturing company or a seasonal retail business, this continuity can help keep everything running smoothly.
Another plus is the direct investment the new owners have in the company’s future.
When management becomes owners, their financial and personal success is directly linked to the business, which can lead to a more driven and focused leadership.
Potential challenges to keep in mind
It is worth keeping in mind that MBOs do come with their own set of challenges.
These buyouts are often funded through a combination of debt and equity, which can place a financial strain on the new owners.
Loans backed by company assets or personal guarantees increase risk, particularly if the business faces unexpected difficulties.
For instance, a logistics company hit by rising fuel costs could struggle to manage the additional debt.
Tax is another important consideration.
At present, Business Asset Disposal Relief (BADR) reduces the CGT to 10 per cent on qualifying gains up to £1 million.
However, if the Budget aligns CGT with Income Tax rates, the tax bill could double for higher-rate taxpayers.
BADR could also be scrapped, which could make selling the business through an MBO much less appealing.
Is an MBO the right move for you?
An MBO can be a great way to exit the business while keeping the leadership in capable hands.
It ensures stability for employees and rewards those who have been instrumental in the company’s success.
However, the potential tax changes mean that timing could have a big impact on the financial outcome of a sale.
If you are weighing up your options for a potential MBO or need advice on structuring the deal, our team is ready to help you through the process. Contact us for further assistance.