Buying an existing firm has its pluses

Tom Welsh
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ENTREPRENEURS found start-ups. Being entrepreneurial means starting a new company, with an original idea, or a more efficient process. Or so the old story goes. But does it need to be this way? Not according to professor Miguel Meulemann of Vlerick Business School in Belgium.

Meuleman has launched a new initiative at the school – devoted to promoting and explaining the advantages of company buy-outs for budding entrepreneurs. “There are lots of obstacles between theory and practice for anyone looking to start a successful business. Only a few succeed,” he explains. But “the risks involved in a buy-out are a lot lower than those involved in a start-up, as the company already has an existing product along with its own clients, suppliers, and investors.”

He is correct. An existing company has a history – a proven idea, a supply chain, and most have a market. A buy-out may also be an interesting idea for employees of a privately-held business. If your employer is in trouble, and you consider yourself (or you and your colleagues) better suited to running the firm, buying him or her out could the solution.

It’s not necessarily a simple process. How do you value the firm, for instance? And once you’ve reached a valuation, how will you fund the purchase? Many companies (especially smaller ones) are sustained by relationships that border on the personal. With new management in charge, will those continue?

But if you are interested in buying an existing company, there are also solutions to these problems. Lloyds TSB Commercial Finance, for example, offers specialist management buy-out products that enable you to leverage the value of a firm’s assets. This may allow you to fund a buy-out without relinquishing equity or taking on additional debt.

Meuleman isn’t saying buying an existing company is necessarily any easier than starting one of your own. But it’s at least worthy of some consideration.

Tom Welsh is business features editor at City A.M.