Succession strategies - Part 3: Selling & legacy issues
As mentioned in our earlier blogs, owner managers often care deeply about the business they have worked so hard to build up and what might happen to it after they leave the stage.
They might worry that the culture, personality and brand of the business will change under new ownership and that what made it special in the first place will slowly be eroded.
As the culture and identity of a business is often embedded in the people who work in it, is selling internally the answer?
Two examples of how this might be achieved are the VIMBO and the Employee Ownership Trust.
The VIMBO (vendor initiated management buy-out) is a particular kind of management buy-out, where one or more people involved in running the business purchase it from the current owner. However, rather than the management team leading the process and bringing in private equity or other third party financing, with a VIMBO it is the exiting owner that drives the sale process.
VIMBO’s are particularly suited to a seller attracted to the idea of exiting the business gradually over a period of time.
Consequently, if the sale of the company can be funded by a combination of:
- cash in the business
- money put in by the new management team (perhaps by realising options or share capital acquired as part of your successor incentivisation)
- the exiting seller agreeing to retain some form of interest in the business in the form of equity or debt
Then it may be possible to effect an exit under the radar, without control or influence passing outside those working in the business.
Employee Ownership Trust
An Employee Ownership Trust (“EOT”) may also be a suitable option, by offering a tax incentivised method of transferring control of the company for the long-term benefit of employees, akin to the “John Lewis model”.
Succession planning is a broad and complex area that is perhaps often put off for those reasons alone.
If you properly build succession planning into your business planning, you are more likely to get the kind of exit you want when you want it and maximise the value you get from the business you have worked so hard to build up.
Get in touch
For more information on succession strategies, please contact Principal, Paul Bevington.