Grainworks Old + New: A destination for bourbon enthusiasts
It’s pedal to the metal for Robinson, Inc.
April 18, 2024
For many C-suite employees, the idea of owning the business they work for is a dream come true.
If you’ve been working for a successful business and have valuable leadership experience, buying the business from your boss could be a realistic goal.
Securing funding
Typically, the biggest hurdle in buying a business is obtaining the cash/equity and securing the necessary funding to close the deal.
The good news is, a healthy business is an attractive proposition for lenders and investors. You’ll need to demonstrate the business has sufficient cash flow to cover the debt service and that you have the skills to lead the business forward.
If you can do that, a commercial bank loan is one potential funding source.
An investment bank may also be able to match you with investors looking to support a management buyout.
For smaller businesses, the Small Business Administration (SBA) offers government-backed loans with favorable terms, including longer amortization timelines and smaller equity requirements.
In some cases, the current owner may be willing to provide seller financing for a portion of the purchase, which, if structured correctly, could act as “equity” in the deal.
Leveraging private equity for an ownership stake
Beyond traditional financing, another avenue to consider is partnering with a private equity (PE) firm – which specializes in investing in businesses with growth potential and a strong proven management team.
They can be a valuable partner in your ownership journey.
In this scenario, the current owner could lead the sale process with the goal of helping you gain an equity stake.
PE firms often place a premium on businesses with strong, motivated leadership already in place.
By marketing the business with you as part of the succession plan, the owner may increase the market value of the business.
As part of the transaction, PE firms will often structure a deal that creates an ownership stake for essential company leaders.
One significant advantage is, you may not have to put much of your own capital into the transaction.
Plus, these arrangements rarely require the new minority owners to make personal guarantees on a loan.
That means you could gain an ownership stake without risking your home or retirement savings.
Approaching your boss with a proposal
Though it’s tempting to wait for your boss to announce a sale, being proactive can be much more advantageous.
Many business owners keep potential sales confidential, and by the time you find out, it may be too late to express your interest.
The key is approaching your boss when you have a genuine and well-developed interest in acquiring the business.
You may raise the issue years before the owner plans to sell, and that’s okay.
There’s nothing unprofessional about asking to own a business you care about.
Highlight the advantages.
Explain how your experience and leadership will ensure a smooth transition and continued success for the company.
You may be best positioned to carry the owner’s values forward, maintain company culture, ensure customers are well taken care of and keep the business in the local community.
If the owner is ready to sell soon, you may have helped solve a succession problem.
Even if they’re not ready, they may see the benefit in offering you a minority stake and keeping you invested in the business.
This benefits the company today and positions it for a stronger future – especially when it comes time for the owner to sell.
Having a strong leadership team with a stake in the company’s success can be a significant selling point for buyers and can increase the company’s value.
Seek professional advice
Throughout the process, it’s essential to have experienced advisors in your corner.
Engage an investment bank or M&A advisor to help with transaction and funding options. Consult an M&A attorney to navigate the legal aspects and an accountant to ensure the deal is structured in a way that benefits both parties and minimizes potential tax implications.
Your boss should have their own set of advisors, including an experienced M&A advisor and an attorney to protect their interests and ensure a fair transaction.
Buying the business you work for can be an exciting endeavor that requires careful planning, strategic funding and a strong partnership with your current boss.
Talk to your boss and, if they’re amenable, encourage them to consult an M&A advisor.
The right arrangement can enhance business value while providing you with the life-changing opportunity you desire.
