What Are the Risks of Buying a Business?
Starting a business is one of the hardest things you will ever do, and running a business is a close second. Every day will bring new challenges but also new possibilities to improve and further your business. Some possibilities bring risks that can seriously hurt your business, but also catapult it into the stratosphere. One of these possibilities is buying a business.
You can buy a business for many reasons. Another business may have a patent or technology you need or help you improve your revenue by opening you up to another industry. One of the more exciting possibilities is buying a competitor to take control of the market and allow you to do more of what you already do. There are many reasons to consider buying a business, but with any large business venture comes risk.
If you’re planning to buy a business but are unsure of what risks you may take on, consider contacting an entrepreneurial law attorney. We can look into the legal requirements and risks that go into buying a company, taking into account the new business’s size, your current business’s size, both associated industries, and what the state(s) requires for such a purchase. The attorneys at Tressler & Associates are ready to help.
What Are the Risks When Buying a Business?
Let’s divide potential business purchases into two categories: buying a business in the same or similar industry as your business and buying a business in a different industry. Some risks apply to both, but some risks are only associated with one type of business purchase and not the other. Some universal risks include:
- Onboarding Employees: Odds are that any business you purchase will not have the same company culture as yours. This means the employees have different work processes and work ethics. You have to either reconcile these differences with your business’s working process or transition them completely to yours. If management is up to this challenge, this can cause both businesses to stall and suffer.
- Onboarding Customers: Even if you buy another business, you still have to remind its customers that you’re here to serve/sell to them. Customers won’t automatically understand that your business is the only one that can help them without you showing it. You need to have marketing blasts, public transitions, and constant contact with your new customers. You also have to do so in a way that abides by corporate law, especially while the purchase is still going through.
- Gathering Capital: You have to have the capital to purchase a business like you would anything else. In most cases, businesses would take out loans rather than spend a large amount of their business savings. Getting a loan leads to the risk of being in debt should the business venture go array. It can even be the reason the business venture doesn’t have the chance to work out because you can’t pay back the loans or other investments you collected.
- Keeping Track of Taxes: While the types of taxes may change depending on what kind of business you’re purchasing, you will have to pay more and track more. When you have to start filing as one entity together, or as two separate entities, is something attorneys and financial analysts can guide you through as time goes on.
- IP Ownership: Once you settle the transfer of trademarks, copyrights, and patents to your business, you still have to deal with branding issues. This extends beyond marketing but having to own the various different combinations of your brand with your new businesses. You also have two brands you have to protect. Even if you completely rebrand the business you’re buying to be like yours, you still have to make sure that no one infringes on your purchase’s intellectual property.
Risks of Buying a Business in Your Industry
While there may be fewer problems with onboarding employees and customers since you know what they sell, there are more problems surrounding the purchase itself. If you’ve been paying attention to the news, company mergers are popular right now, with names big and small gobbling each other up and disrupting their industries.
A small business buying up another small business isn’t going to be as big a deal as Disney buying 20th Century Fox, but it may affect your local community. Competition is key to our economy on every level. If there are three businesses in the neighborhood competing for the same audience and one buys another, then the third can do something about it.
The Federal Trade Commission (FTC) has several laws and regulations about this. You can be investigated and need your purchase approved if your business is important enough to your local economy or someone else in the market has a problem with it. This means you have to contend with competitors and the government if you’re not careful about your purchase. To avoid these kinds of problems, extensive research needs to be done across multiple fields, especially entrepreneurial law.
Risks of Buying a Business Outside of Your Industry
While the government may be less inclined to keep you from entering a new industry, competitors may be more so. When you buy a business in another industry, you aren’t removing one of the competitors in that market unless you plan to shutter the business. This does mean that you’re giving your purchase a perceived advantage in the marketplace by giving them your investment. Competitors will see this as a threat and try to drive you out. Sellers may even decide not to work with you because you’re not a trusted veteran in the industry.
Not having connections, even as rivals, can make it difficult to be successful. No industry is welcoming to outsiders, and you may have many competitors and tangentially related companies who actively try to keep you out. This can lead to a purchase that has wasted your money.
The other issue is that when your business operates across multiple industries, there are more laws and regulations you have to follow. If you’re not familiar with everything you’re buying into, you need an attorney who can explain it. You will likely need legal professionals to review your decisions for years before you’re operating in perfect condition.
Consider the Risks with the Help of Tressler & Associates
We have several attorneys with experience helping businesses find success in their many different business ventures. Our attorneys review business documents, create them, and work with businesses to plan for the future as best we can. This way, your business is less likely to be slowed and threatened by a business risk you want to take. Buying another business is one prime example of how we can help.
For entrepreneurial attorneys who can help you through the process of buying another business, contact Tressler & Associates today.
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