Bridging the Way BayState Business Brokers blog

If you are going to buy a business, you need to accept business risk.

by | Mar 11, 2011

One of the biggest differences between business owners and non-owners is their willingness to accept business risk.  But, the acceptance of business risk is also the reason for the high return on investment that business ownership produces.   If you want a safe investment, buy a government bond.  A ten year US Treasury security currently pays about 3.5%.  Ownership of a reasonably successful small business can give the owner an ROI of 25% to 50%.  Borrowing part of the purchase price increases the return, and risk, more.  Of course, there is no guarantee of a profit, or return, on the investment – hence the business risk.

Accept business risk

For the first time buyer, or non-buyer, business risk looks huge, intimidating, and can prevent them from buying a business.  They fear that the real reason the seller is selling is because the business is failing.  They fear that after they buy the business, they may lose their investment.

For an experienced business owner, business risk is something to be analyzed.  Some of the typical questions are: Does the business have a risk of obsolescence?  Can it be replaced by an Internet site?  How dependent is the business on one, or a few, customers?  If it is a personal service, will the people providing the service stay?  If some leave, how hard is it to replace them?  How necessary is the product or service?  How strong is the competition?  After evaluating the answers to these questions and other questions, the experienced business buyer makes a decision, and accepts the risk because the buyer has analyzed the situation and decided that the risk is acceptable.



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