I am in Montreal, Canada attending a family function. I ran into an old acquaintance who I have not seen since elementary school. He was, and still is, a very smart person, at least acedemically. Turns out he is a mid-level manager at an aerospace company here, and he absolutely hates his job. He makes a decent living I suppose, but he told me he always wanted to own his own business. He told me about a bunch of businesses he considered buying in the past ten years, but at the end of each story, he finished by saying: “I decided it was too risky, what do you think?” I replied each time “I don’t think so based upon what you told me.” However, he paid no attention whatsover to what I said because he had long convinced himself otherwise.

It brings up a frequent topic raised by many people that find themselves in the process of buying a business. The first thing you need to realize is that

you can never completely eliminate all the risk in any initiative that has a relative reward down the road.

It does not matter whether you are talking about buying a business, taking a new job, or getting married. Risk is inherent with any decision, or change you make in your life. If you do not have any tolerance for it, then you are wasting your time looking to buy a business.

However,

while there is always some element risk in any deal, let me dispel one hard-core myth: buying a business does not have to be a risky venture.

Understanding risk, and embracing it, will actually play in your favor.

Personally, I think investing in the stock market regardless of the economy, carries a greater risk because you are betting on a business where you have zero control. Yes, I know that many of you will debate this point by saying that over the long-term stocks have always proven to be a good investment. That is true, but if you want to be in your own business, your timeline for success is shorter, and there is potential for a much greater upside.

There is no question that there is always some level of risk whenever you invest your money, regardless of where it is placed. Additionally, there are many people who simply cannot get over the hurdle of risk and never end up acquiring a business. However, the goal of any business buyer is to mitigate the risk involved. The only way you can to do that is by conducting a thorough review, and exhaustive research of the business and industry you are considering.

But the “risk” involved when buying a business does not simply entail its risk relative to the potential reward, nor should it only be measured as relative to other investment opportunities. It must be relative to the specifics of the business you may be evaluating.

For example, some areas that I deem to be risky when analyzing a business are:

• A major customer concentration issue.
• Potential looming threats beyond your control (i.e. legislation or technology that could severely impact the business in the future).
• Reliance on a limited number of key employees that possess certain skills and/or licenses needed to operate that you do not possess.
• A declining business.
• A business that cannot be grown (while there are some ultra-stable businesses that are not in a growth industry, ultimately, they will decline).
• Any business that relies solely on price to generate its sales (these are usually low-margin businesses, as well, which again, I believe are risky).

The beauty of these so-called “risks” is that a knowledgeable business buyer can easily take precautions to limit them by structuring a deal that protects them accordingly.

On the other hand, you can easily convince yourself that any business for sale has “too much risk”. One thing I can guarantee you, is that every successful entrepreneur on the planet has faced and embraced risk on their road to success.

In most cases, the biggest risk when buying a business actually lies with the buyer’s incompetence, or lack of confidence to operate the business. If you are not willing to bet on yourself, or if you do not have the self-belief to be a boss, then no deal structure can ever protect you.

With the current economy, the perceived risk can be magnified. Your friends, family and possibly some advisors will make a case that right now it is too risky to buy a business. Of course you have to respect their opinion, but ultimately, you have to make your own decision.

If you go about the process diligently, if you properly prepare yourself, and if you take the time to first learn how to buy a business, then you can make a well-informed decision.

And a well-infomed decision, coupled with effective deal terms, can address all of the isuses.

Buying a business should never, ever be a leap of faith.

Just like and other major decision, knowledge is your greatest ally, it is your parachute.

Instead of being distracted by all the ebbs and flows of the current market, or becoming unduly influenced by the doom and gloom, attention-grabbing news headlines, do yourself a favor and carry on with your quest, but go about it armed with the knowledge to structure a deal that addresses the relative risk of the business.

When you adopt this strategy, you will soon gain comfort with any perceived risk, and while others are sitting on the sidelines, you will be on your way to the rewards you deserve.