Slaying the Fear of Risk When Buying a Business

Slaying the fear of risk when buying a company

Slaying the Fear of Risk When Buying a Business

In my twelve years of selling businesses, I have never seen such heavy buyer activity as we currently are experiencing. This is true with every type of buyer from financial to strategic to the individual buyer. Once sellers accept their offer, all buyers need to do their due diligence to minimize the risk that comes with business ownership. Yet, I’ve found some buyers, and mainly individual buyers, are too risk averse to step into business ownership. The statistics show that 90% of buyers that set out to buy a business never follow through. What do the 10% of buyers, that actually buy, have in common?

Evaluating a Business to Acquire

Selling a business has a structured process that includes marketing the business using a Blind Profile, securing non-disclosure agreements from interested buyers, providing the Confidential Information Memorandum (CIM) to the buyers, meetings between the sellers and prospective buyers, negotiating offers, managing due diligence and closing the transaction. When buyers meet with the sellers, they normally have multiple questions for the sellers to ensure this is the right fit and to understand their risk. A common question I’ll hear from individual buyers is, “What is the worst situation that could happen to the business?” Many sellers have owned their businesses for 25-30 years. This means they’ve navigated their business through 9-11, the Great Recession and the recent pandemic.  It doesn’t get any worse than that.

How Do Business Owners Survive Risk?

Successful business owners know how to slay the fear of risk. They believe in their business, they believe in themselves and they never give up. They realize that owning a business involves risk and feel energized by the challenge of navigating through a tragic event. They consciously communicate to their team how they plan to get through a downturn. They’re promoters of the “all hands-on deck” mentality and they look forward to the next challenge. Buyers of businesses need to share these attributes.

You can see the glow in the eyes of business owners when they share their story of how they kept the business afloat during times of despair. Oftentimes I’ve found it’s a good health check for the business when times are tough. Maybe they were overstaffed? Or by cutting back they discovered expenses they’re able to get by without?

What is the Take-away for Buyers of a Business?

I’ve been in contact with some buyers that have been looking to buy a business for over ten years.  Yes, ten years. When they tell me how they’ve come so close and then a business deal went bad or another buyer outbid them, I question if they really have the make-up to own and operate a business. Buyers of businesses need to realize there is always risk in owning a business.  There is no getting around it. Yet, there are things a business owner can do to minimize risk such as proper budgeting, strong financial management, and smart hiring. When a disaster happens that tears at a business, the leader needs to lead to overcome the challenge.

There are multiple reasons why you’d want to own a business:  taking a small firm and growing it, building the team, accomplishing goals, being your own boss and building your net worth are a few. Yet, to be able to do all of these things you need to do a gut check. Do you have what it takes? Can you slay the fear of risk? Can you be included in the 10% of buyers that actually buy? If you can, there is no limit to how far you can take your new venture.