Why is the phone ringing? This is one of the most important questions I ask anyone looking to purchase a business. There are several factors that will contribute to this answer but for now we are going to focus on risk management. To understand better we will look at a recent lawsuit Gestation F Lessard. v. Bourneville, where several defects had a negative impact on the purchase of a business.
What can we learn:
1. Avoid - In risk management, avoiding a risk can be the most effective strategy. Sometimes we need to take a step back and analyze things before making a commitment.
Solution: Ask a third party to analyze the business from an unbiased perspective. If you can’t gather all the information they need you are better off avoiding the risk than taking a chance.
2. Control - Terms and conditions can be a life saver when making any type of transaction. By controlling the risk, you are taking the necessary steps to reduce or prevent bad outcomes from happening
Solution: Consider a diligence review and subjectivities while doing a deal. This is something your legal council and business consultant can help with during the purchasing process
3.Retain - Part of owning a business is taking chances. Sometimes you will have exposures which you cannot avoid and you will need to accept that.
Solution: Understand what type of risks you are willing to and can afford to absorb. A good financial plan can help with planning for unexpected expenses.
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Discovering risk through engaging discussions.