What does it take to take on the ownership of the business you work in? Is prior experience essential? If you’ve not owned a business before, can you ‘learn on the job’?

If you are fortunate enough to have an opportunity to become the owner or part-owner of the business you work in, should you take it? What might the current owner consider in formulating their decision to sell to the management team?

One consideration is that the best employee does not necessarily make the best boss. This is seen countless times when the best performing salesperson is promoted to sales manager and badly underperforms, or the best technician or engineer is elevated to technical director and struggles with the wider remit of the role.

The issue here is that being a top performer, in say a creative, financial or technical role, does not automatically qualify someone for the next step. Often this is because the individual hasn’t had experience of leading a team, planning, thinking strategically or being able to operate across business functions rather than within one. If you expand the principle to your top manager becoming the business owner, the consequences may be amplified. That’s not say without support they can’t do a great job but the need for support has to be recognised and put in place.

For a business owner the pleasure of a successful management buy-out enhances the overall exit experience. Likewise for employees being part of the buy-out team is a fantastic opportunity to move to ownership and the potential wealth enhancement that can entail.

Recently we’ve been involved in several situations where ownership is being transferred within the business and we’ve seen first-hand some challenges with the execution of the change. Leaving aside the commercial structure of the deal itself we would recommend to ‘both sides’ that they consider:

1. A full understanding of what ‘ownership’ means – it’s not simply a bit more responsibility or a promotion, there are fundamental differences that need to be understood.
2. Is there the headroom for senior managers to step up or are they so busy already that they have no opportunity of successfully making the transition?
3. Is everyone clear about what the departing owner was doing for the business and hence the gap that needs to be filled?
4. Are future roles for each prospective co-owner clearly identified and distinct?
5. Have development plans been established with sufficient transition time between one ownership regime and the next?
6. How can the departing owner support the process through mentoring and developing the new ownership team?
7. How can external advice and expertise be built into the plan and is it made available early enough in the process?

An ownership transition is different to starting a new company where the focus may well be on winning business and delivering products, projects and services yourself or with a very small team. Taking over an established business, albeit one in which you may have worked for some time, has different pressures and demands to a start-up including taking on existing client relationships, managing key suppliers and partners, new relationships with the rest of the team, learning about governance, developing and executing business strategy etc.

There’s a lot to plan and a lot to ensure is undertaken successfully to make a management buy-out work for everyone – departing owner, new owners, stakeholders and the wider business team. If a management buy-out (MBO) is a consideration, or if you have started the process and would value a progress check, please contact Henchards.

(Image by wirestock on Freepik)