Common challenges & risks associated with buying a business

Business ownership is a prospect that promises leadership and financial prosperity, and entrepreneurs looking to capitalise on strategic business acquisitions often look toward well-established organisations as their play. However, beneath the surface of this opportunity may lie a complex landscape of challenges and risks that demand careful consideration.

This blog will outline what you need to know about buying a business, risks and other important considerations to ensure you navigate the process with greater clarity to safeguard your investments.

The risks of buying a business — what you need to know before signing the dotted line

For many entrepreneurs, the perceived simplicity of buying an established business may seem like a safer bet than starting from scratch. However, it’s essential to acknowledge that this path is not without its risks. Unlike building a business from the ground up, purchasing an existing one requires thorough due diligence to mitigate potential challenges and enforce informed decision-making. Let’s delve into the key risks associated with buying a business.

Financial risks

Buying a business can risk your financial standing. One of the most prevalent financial risks is overestimating the value of the business. Sellers may inflate the business’s worth, causing buyers to pay more than the company’s actual market value, hurting your back pocket. Overlooking hidden liabilities during the due diligence process can also threaten the prosperity of your investment, as pending lawsuits, tax arrears or undisclosed debts can bring on unforeseen expenses.

Like any investment, past performance is not an indicator of future success. A business that seems profitable at the time of purchase may experience a decline due to changing market conditions, increased competition or other unforeseen factors.

Operational risks

Any seasoned entrepreneur knows successfully transitioning into a new business environment requires proficient management skills. In some cases, buyers may face resistance from existing employees or find it difficult to adapt to the company culture. Naturally, a change in ownership could also lead to disruptions with suppliers if these relationships are not carefully managed post-acquisition.

While change is inevitable with any business acquisition, investors may face intense scrutiny from employees should they wish to change operational processes and procedures. Employees and stakeholders may be heavily accustomed to the previous way of doing things and may resist these new strategies, causing operational inefficiencies to ripple throughout the business.

Legal risks

Measures to minimise legal risks must be a priority for any entrepreneur acquiring an established business. For instance, existing contracts with suppliers, customers and employees come with fixed terms and conditions. Buyers must carefully review and assess these agreements to avoid issues down the line.

Different industries are also subject to varying degrees of regulation and compliance. Acquiring a business without a comprehensive understanding of its regulatory obligations can jeopardise the value of your investment.

Reputational risks

The risks of buying a business also extend to your reputation and the brand’s. If a business has an existing negative reputation, this could taint your image by association. These feelings of negativity and uncertainty also trickle down to employees who may feel uncomfortable about new ownership. Investors and stakeholders could also share this view and may question your true intentions with the business.

Building trust and fostering a sense of community is the best way to approach these situations. Communication is key during any transition process. Present your strategic plan with key employees and stakeholders, welcoming any feedback and encouraging staff to share their ideas.

While acquiring a business can be risky, it can also deliver substantial results. Well-informed and diligent buyers can transform these challenges into opportunities for growth and success.

Resolve — revolutionising business acquisitions, one listing at a time

There’s never been an easier way to find businesses for sale than the Resolve marketplace. Our central marketplace lists several available businesses across various industry sectors, from healthcare technology to construction and manufacturing. Browse our listings, submit an enquiry and access the statement of information before receiving other business data and information.

Get started by creating an account with Resolve today or contacting us to learn more about our unique service.

Photo by Taylor Nicole on Unsplash