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

Guest post by: Marc Gudema

Article Overview: Many first time buyers, don't buy a business because of the risk. Experienced business buyers look at it differently.

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

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.

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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Article Tags: business risk, buy a business, risk of buying a business



Related Forum Posts
10 best franchises to get involved - I don't think a franchise (or even most businesses) fits your criteria even if you had enough savings to take the risk. Personally, if I were your age and had your aspirations, knowing what I know now, I'd probably look at real estate. Doesn't take near as much money to get your feet wet, and there's nowhere near the risk of most businesses, certainly most franchises. Starting out I'd look at rehabbing houses that I when finished would sell in most places in this country in the $75 - $150,000 range. Bubble or not, there is a huge demand for nice starter homes. I can't think of another business with less downside risk and more potential. The best business could peter out before you're ready for it to. Real estate is forever.
Re: Would you buy a house for a dollar? - What I know is that risk is risk be a dollar or hundreds of dollars. What matter is cross checking the genuity of the business.
What is an entrepreneur? - I'm about to open a business in which I work for myself, it's going to be a small business.... I don't really think of myself as an entrepreneur but rather a "small business owner." Everyone's being very supportive of me... (I just looked it up in the dictionary and the defnition of entrepreneur is "the owner of a business, usually with considerable initiative and risk". Is that what separates an entrepreneur from a small business owner - level of risk?
Re: Facebook friends - I guess a lot of people will want to have different Facebook accounts for different faces, just as with Twitter. In my case, I doubt I'd ever get around to managing more than one Facebook account so I accept friends and business buddies but I don't usually accept requests from people I don't know. I hide some posts that are nothing more than classified ads, but if someone has something interesting to say, I let it stand.
Re: Are entrepreneur women more organized than men? - The issue of women being more organized than men is true, start from you home, just see how messy the boys are. Women are also very cautious, unlike men who take any risk, a woman will analyze the risk first. Women are also go getter when it comes to business, once they make their mind, then they go for it.


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