The dream of being the boss is a timeless aspiration, now more attainable than ever through a leveraged buyout. This strategy allows employees to acquire their company, often with the existing owner’s implicit support. Stories of successful employee buyouts frequently appear in business publications, highlighting how new owners leverage company assets to secure funding.
However, a successful leveraged buyout demands meticulous planning and execution. Here’s a step-by-step guide to increase your chances of success:
1. Assess the Business Objectively: Can you genuinely outperform the current management? Develop a data-driven rationale for your capabilities. Create detailed projections for the company’s existing products and services over the next five years. A company’s assets are meaningless without a viable future in the market.
2. Identify Growth Opportunities: Explore untapped potential within the company’s capital structure over the next five years. Incorporate these projections into your financial models. Remember to account for unexpected costs and potentially lower-than-expected earnings during the initial transition period. Build in some financial flexibility to address unforeseen issues.
3. Conduct Thorough Due Diligence: Objectively evaluate the company’s assets. Request access to tax returns, financial statements, and legal documents. Engage with the company’s accountants, attorneys, vendors, customers, and employees. Consult industry benchmarks and statistical data. Investigate any inconsistencies. Understand that acquiring a business is similar to buying an old house – there are known and unknown problems.
4. Address Environmental Concerns: Environmental liabilities can significantly impact a deal. Lenders typically require environmental assessments of real estate. Remediation costs can be substantial, potentially affecting the seller’s profits and, in some cases, shifting costs to the buyer.
5. Determine Valuation: Perform multiple valuation calculations. Companies are valued based on multiples of earnings, asset value plus goodwill, premium valuations, or sophisticated financial models. No single valuation method is definitive. Negotiate favorable terms to protect your future financial interests.
6. Prioritize Terms Over Price: Focus on controlling the terms of the acquisition rather than solely minimizing the price. Structure the deal creatively to meet both buyer and seller needs. This may involve adjusting compensation and benefits during the transition period and gradually shifting leadership responsibilities. Flexibility and a collaborative approach can ensure a smoother transition.
7. Secure Financing: Explore diverse funding options, including personal assets, loans from family and friends, bank financing, government loan programs, and investments from venture capitalists. A well-structured financial package is crucial for long-term success. Allow ample time (2-6 months) to secure the necessary funding.
8. Navigate the Closing Process: Exercise caution, as deals can collapse even at the final stage. Ensure all requirements are met before the closing session.
9. Embrace Ownership: Once the deal is finalized, you are now the owner, with full responsibility. Manage finances, employees, and product/service delivery. A pragmatic business approach will improve your chances of success. The ultimate responsibility rests with you. This is a challenging and rewarding role if you have an entrepreneurial spirit. Seize the opportunity with confidence and diligence. Congratulations – you’re the boss!