Acquisition finance
Management buyout finance: how a team funds buying the business it runs
In a management buyout (MBO), the people who run a business buy it from its owners. Few management teams can pay the full price themselves, so MBOs are usually funded from several sources: the team’s own money, borrowing, the seller agreeing to be paid part of the price later and, sometimes, outside investors. Here’s how that usually fits together, and the steps involved.
Wize Finance can talk through which types of business finance may suit the deal. It doesn’t advise on buyouts, valuations, tax or legal structure, so you’ll want an accountant and a solicitor involved from the start.
Tell us about the buyout team and the amount you're looking for. The team reviews your enquiry and discusses how the deal might be funded.
What a management buyout is
A management buyout is when a business’s existing management team buys all or part of it from its current owners. Common reasons include:
- the owner is retiring or wants to sell
- the owner wants to sell some of their shares
- creating a new business out of part of an existing one (a subsidiary or spin-off)
- the team wants to own the business it works for
- the business might otherwise close
What makes an MBO different: the buyers already know the business, its customers and its staff, which can make the handover smoother. But the team is negotiating the price with the person it has worked for, so independent advice on both sides matters.
How an MBO is usually funded
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Source A: The management team’s own money
- What it is
- The team buys some of the shares with its own funds
- What to know
- It shows commitment. Lenders and investors usually expect it. How much varies
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Source B: Bank and other borrowing
- What it is
- Loans, and sometimes asset or invoice finance, to fund part of the price
- What to know
- What lenders will offer depends on the business’s cash flow and the security available
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Source C: Deferred payments to the seller
- What it is
- The seller is paid part of the price after completion, sometimes through a vendor loan note
- What to know
- It needs the seller’s agreement and may carry interest → Seller/Vendor Finance
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Source D: Outside investors
- What it is
- A private equity firm or other investor takes a stake
- What to know
- Investors have their own terms and expect a return → Equity Finance
Points to weigh before you start
- The team’s own money is at risk. If lenders ask for personal guarantees on any borrowing, the people who give them could be personally liable if the business can’t repay.
- After completion, the business carries the repayments, which can leave less to spend on growth.
- If part of the price is paid later, the seller stays financially tied to the business until it’s paid.
- The deal is negotiated and funded while you’re still running the business day to day, so agree early with the owner how you’ll handle that.
The main steps in a management buyout
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Write a business plan.
Cover the valuation, financial projections, how the buyout will be funded and how the business will keep running.
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Agree terms with the seller.
Including the price, how and when it’s paid, the completion date and any exclusivity period.
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Check whether HMRC approval is needed.
Some buyouts need clearance from HMRC. Your accountant can tell you whether yours does.
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Arrange the funding.
For the purchase itself, and for day-to-day working capital and any planned investment after completion.
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Due diligence.
You check the business thoroughly before the deal completes, and the seller will want to check that you and your team are suitable buyers.
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Review and sign the legal documents.
These may include a sale and purchase agreement, a vendor loan note, banking and security documents, an investment agreement and new employment contracts.
What lenders may look at in an MBO
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The team: its experience running this business, who leads it, and whether there are gaps
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The business: its trading history, cash flow, customers and existing debt
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The price and structure: how the price was agreed and how it’s being funded
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The team’s stake: how much of its own money the team is putting in
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The seller’s role: whether part of the price is deferred and whether the seller stays involved for a period
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Security and guarantees: what’s available, and whether personal guarantees are asked for
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The plan after completion: forecasts, working capital and investment plans
Management buy-ins
In a management buy-in (MBI), an outside manager or team buys a business and takes over running it. It’s funded in similar ways to an MBO, but lenders and investors may look harder at the incoming team’s experience and its plan, because the team doesn’t yet know the business from the inside. Some deals combine both: existing managers and an outside team buy together.
Who buys
existing managers an outside team both
Funding your part of a buyout
MBO teams often set up a new company to make the purchase, and the funding is usually put together with advisers, lenders and the seller.
Related: Acquisition Finance
Management buyout finance FAQs
How is a management buyout usually funded?
Usually through a mix of the management team’s own money, bank borrowing, deferred payments to the seller and, sometimes, outside investors.
Do the managers have to put in their own money?
Usually, yes. Lenders and investors normally expect the team to buy some of the shares themselves, as it shows commitment. How much varies by deal.
What is a vendor loan note?
It’s a written agreement for the buyer to pay part of the price to the seller after completion, like a loan from the seller. It may carry interest and needs careful legal drafting.
What’s the difference between an MBO and an MBI?
In an MBO, the existing management team buys the business. In an MBI, an outside team buys it and takes over running it.
What’s the difference between an MBO and an LBO?
An MBO describes who is buying: the business’s existing managers. A leveraged buyout (LBO) describes how a deal is funded: largely with borrowed money. An MBO can be funded that way, but many combine the managers’ own money, some borrowing and payments to the seller after completion.
Do we need HMRC approval for a management buyout?
Some buyouts need clearance from HMRC. Your accountant can tell you whether yours does and what to do.
Can Wize Finance help with MBO funding?
Yes. Acquisition Finance, including management buyouts, is a route Wize Finance can help with. The Wize Finance team reviews your enquiry and discusses the options with you and, where appropriate, connects you with a suitable funding provider.
Planning a management buyout?
Start with your advisers, a business plan and an early conversation with the owner about price and timing. Then look at how the deal could be funded.
Wize Finance can help you see which types of business finance may suit the deal, whether you’re buying as an individual or management team, or through a new buying company.
Last checked 26 October 2026.