Management buyout (MBO)

Definition

An acquisition of a business by the managers or employees already running it.

Why It Matters

For an operator already inside a business, this can be the shortest path to ownership, since the diligence risk is low when you know the company and sellers often prefer the continuity. The hard part is money and permission rather than knowledge: managers rarely have the equity injection on hand, so these deals lean on seller notes and on the same lender tests any outside buyer faces. The other half is timing the conversation, because raising it changes your position at work whether or not the deal happens.

In numbers: A GM earning $140,000 buys the $4,000,000 company they already run: 10% down from savings and a 401(k) rollover, a seller note for 15%, and a 7(a) loan for the rest. Lenders like MBOs because the operator risk is already answered; the seller finances more because they know exactly who they are betting on.