The ‘art of the possible’


chris griffiths
Technical Investment Director
Published:
buy out

It still surprises me when I hear of capable management teams who don’t take up the opportunity to buy the business they’re working for when its put up for sale. Many of these teams know the business inside out and they also have firm views on how they’d take it forward.

Selling a business to its existing management team is often an attractive option for the owner, so why aren’t more management teams taking the plunge? 

While a lack of confidence could be one reason, I wonder how many management teams are put off because they think they can’t afford to buy the business. Fortunately, access to finance doesn’t have to be as big a barrier as it may at first seem. 

What potential funding options are there?

As Technical Investment Director here are the development bank, thinking about the ‘art of the possible’ is something I do a lot - especially when it comes to helping ambitious and capable managers secure the funding to buy a business.   Banks or investors like the Development Bank of Wales can often come up with the lion’s share of the finance needed, leaving the management team to cover a relatively small portion of the funding they require. 

If the management team are still left with a funding gap, it’s not the end of the story. There are still a number options worth considering:

  • Leveraging fixed assets - Raising finance against fixed assets can be an effective way to secure additional funding. Stock that’s easy to sell will always be attractive to asset-based lenders and plant and machinery is also an option, especially if it is bespoke or has recently been upgraded. 
  • Leveraging a business’ debtor book/invoices - Some banks and specialist funders will provide funds against current and future invoices.  While this can be a useful way of unlocking finance, it’s worth taking a longer-term view as you could be left with little headroom should revenues dip once you’ve taken over.
  • Leasing property - Property costs invariably bump up the price of a business, but if they’re taken out of the equation, you can reduce the price.  Leasing back premises will not only make the deal easier to fund, but it will also leave the current owner with a monthly income. 

 

Focus on the ‘art of the possible’

So with an open mind, positive attitude and a clear focus on the ‘art of the possible’, could 2018 be the year you achieve your goal of owning and running your own business?

The Development Bank of Wales can support a full range of business succession options. To find out more about how we can help contact us.