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Can your management team take over the business?

In short

Often, yes — but management taking over the running of a business is different from management buying it. In management succession, managers lead while the owner may remain a shareholder. In a management buyout, managers acquire ownership, usually with external funding and some deferred payment to the seller. Many owners appoint management first and consider an MBO once the team has proved itself.

Written by Tony Vaughan

Last reviewed: · Editorial policy

Key points

  • Management succession does not require a change of ownership.
  • An MBO needs willingness, capability and funding.
  • Depth beyond one manager reduces risk.
  • Transition time depends on how far the team must develop.

Management taking over the running of a business is not the same as management buying it. Owners can appoint management and retain ownership, or progress to an MBO when the team is ready.

An experienced supervisor discussing bakery operations with two colleagues
Management succession compared with a management buyout
  • Management succession
  • Management buyout

Definition

Management succession

Management succession is the transfer of day-to-day leadership from an existing owner or senior executive to another manager or management team. It does not necessarily involve a change in ownership.

Management succession or management buyout?

Management succession compared with a management buyout

Who runs the business

Management succession
Management
Management buyout
Management

Who owns it

Management succession
Usually the existing owner
Management buyout
Management (often with funders)

Funding needed

Management succession
None for ownership
Management buyout
Yes — often debt, investors and deferred payment to the seller

Owner's position

Management succession
Shareholder, perhaps non-executive
Management buyout
Exits, often receiving part of the price over time

Many owners first appoint management and step back operationally. If the team proves itself and wants ownership, the arrangement can later develop into an MBO. The full mechanics are covered in our management buyout guide.

What capabilities does the team need?

  • Leadership: the authority to make and own decisions
  • Commercial judgement: pricing, investment and risk
  • Customer relationships held by managers, not only the owner
  • Financial responsibility: budgets, cash and lender relationships
  • Depth: more than one capable person, so the business is not simply dependent on a new individual
  • Incentives aligned to long-term performance

When might management succession develop into an MBO?

An MBO becomes realistic when managers want ownership, can attract funding, and the owner is prepared to accept that some of the price may be deferred. The amount of transition time needed depends on how far the team must still develop.

Owner Dependency Score — how far does the business rely on you? How to reduce owner dependency
Management buyout guide Retain equity and appoint management

This guide is general information only. It is not tax, legal or financial advice. Ownership transfers have tax and legal consequences that depend on structure and circumstances — take advice from appropriately qualified professionals before acting.

Specialist resources

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