Every business owner will one day face the same reality: stepping back and having to explore business succession options. The question is not whether succession will happen, but how.
In Australia, the traditional options have often been passing the business to family, selling to an external buyer, or closing the doors. These paths can work, but they often involve compromise. Selling to a competitor or private equity firm may deliver a high price, yet it risks jobs, culture, and continuity. Family transfers are becoming less common as younger generations pursue different careers.
Internal succession offers another way. By transferring ownership to the managers and employees who already understand the business, founders can achieve fair value while protecting what matters most: culture, clients, and continuity.
The Three Core Business Succession Options
1. Management Buyout (MBO)
An MBO is a sale of the business to its leadership team, usually a small group of senior managers.
- Works best when there is a capable and stable management group.
- Funded through vendor finance, debt secured against business cash flow, and sometimes external equity.
- Provides strong continuity of leadership and minimal disruption to customers and staff.
2. Employee-Led Buyout (ELBO)
An ELBO broadens ownership beyond management. Employees across the business gain a stake, either directly or through structured schemes.
- Best suited to founders who want to reward loyalty and embed culture.
- Financing often involves vendor finance, profit recycling, or hybrid capital.
- Increases staff engagement, retention, and motivation.
3. Employee Ownership Trust (EOT)
An EOT places ownership into a trust that holds shares for the benefit of all employees.
- Proven internationally, especially in the UK, where more than 1,500 businesses have transitioned since legislation was introduced in 2014.
- Employees are beneficiaries, sharing in profits and stewardship, without needing personal wealth.
- In Australia, the model is still emerging, but early pioneers such as Meld Studios have shown how it can be adapted through discretionary trusts.
Why Founders Choose Internal Business Succession Options
Most founders who pursue these paths care about more than price. They want:
- Continuity of operations, culture, and relationships.
- Recognition of the people who helped build the business.
- Flexibility to structure an exit gradually rather than all at once.
- Independence from external owners whose priorities may not align.
Blending Approaches
In practice, many of these business succession options are a combination of elements. Managers may purchase an initial stake while a trust or share scheme brings in broader employees over time. This flexibility allows deals to be shaped around the founder’s goals, the team’s readiness, and the business’s cash flow.
When Internal Succession May Not Fit
These models are not suitable for every business. They may not work if there is no capable leadership team, if profitability is too weak to support staged funding, or if the founder’s only goal is to maximise price quickly. In such cases, a third-party sale may be more practical.
Key Takeaways
- Internal succession transfers ownership to people already inside the business.
- The main models are MBOs, ELBOs, and EOTs, each with distinct advantages.
- Many successions blend elements to create flexible solutions.
- Employees do not need personal wealth; deals are funded by the business itself.
- Internal transitions work best for founders who want legacy, continuity, and cultural preservation.
Next Chapter: 3 Reasons Why You Should Choose An Internal Succession Plan!