Create a tax efficient buyout strategy for your business

The sale of your business can be an opportunity to realise the value of your lifetime’s investment. A chance to redress the balance and reap some of the rewards for the sleepless nights, long working days, missed family occasions and the many other sacrifices you’ve undoubtedly made along the way.

But….what if you don’t want to take your business out to market? Or what if you want to pass the business onto the next tier of management and you want to control the process?

A vendor initiated management buyout (“VIMBO”) is a very similar process to a management buy out (“MBO”) but with one pertinent difference – the vendor is the one who initiates the process and makes the approach to management.

 

Key advantages of a VIMBO:

· As the business owner you control the process on your own terms (for example, you may want to retain a stake);

·  It affords a highly flexible approach that can be tailored accordingly to each specific case. For example, the management team may not be in a position to personally fund a material level of the consideration. This does not necessarily prohibit the deal and there are a number of options to work around this;

·  A self funded model is an option (and used regularly in VIMBOs) so the new management team are not beholden to the banks or private equity houses;

·  The commercial risks prevalent in openly marketing your business for sale are mitigated as the deal effectively takes place behind closed doors;

·  A VIMBO provides an added incentive to the management team and eliminates the uncertainty of a sale to a 3rd party;

·  Those in the business will understand the business and appreciate its value and thus a VIMBO can be a more straightforward sell than to a 3rd party; and

·  Provides the vendor with proceeds in a highly tax efficient manner by taking advantage of incentives that are currently available.

 

The management team may have preconceived feelings that VIMBOs are complex transactions which may daunt them and thus erode their confidence so it needs to be positioned in a straightforward manner. It is therefore of paramount importance that the vendor fully explores the option and takes appropriate professional advice before making an approach to management.

VIMBOs present a straight forward, highly flexible option for vendors to secure an exit in a highly tax efficient manner whilst presenting a fantastic opportunity to the management team – looks a win-win to me!

Contact Chris is you would like more information on exiting your business in a tax efficient manner

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