5 Key Risks When You Buy a Business

Thinking about becoming a business buyer? Discover the 5 key risks every buyer must manage to succeed. This guide on how to buy a business covers critical issues like working-capital demands, personal guarantees, ongoing debt service, and reputational due diligence—from digital reputation to legal liabilities.

George Wellmer
George Wellmer

Buying a business is one of the greatest wealth generating investments you can make. The upside of buying a business is immense; however, there are risks. It is important to understand the possibilities when you embark on buying a business.


Here are five key risks all business buyers need to consider when buying a business:


Loss of Money


For a business buyer, understanding the real cash requirements is critical when planning how to buy a business. The initial payment—whether it’s a down payment on an acquisition loan or the full purchase price in an all-cash deal—is only the beginning.


Even after closing, many buyers need to inject additional funds to keep the company healthy and growing. Common scenarios include:

  • Working capital needs – covering payroll, buying inventory, or managing seasonal cash swings.
  • Debt service – making principal and interest payments on senior loans or seller notes.
  • Capital expenditures – purchasing equipment, upgrading technology, or improving facilities.
  • Growth initiatives – funding marketing campaigns, new hires, or geographic expansion.


The takeaway for any business buyer: budget beyond the purchase price. Knowing how to buy a business encompasses understanding the sum of your investment: initial payments + future obligations. You need to be sure you have the liquidity to support operations and growth after taking control of the business.


Personal Guarantee


For a business buyer exploring how to buy a business with financing, be ready to sign a personal guarantee. Most SBA and traditional bank loans require you to pledge personal assets—such as your home or savings—as collateral.


This means that if the business struggles or even fails, you are still personally responsible for repaying the loan. The lender can pursue your personal assets to collect what’s owed. In other words, even if the business goes under, your obligation doesn’t disappear.


Understanding this risk is critical for any business buyer. A personal guarantee can help secure financing, but it also ties your personal finances directly to the success or failure of the business you acquire.


Ongoing Debt Service


When a business buyer evaluates how to buy a business, it’s essential to model the debt the company will carry after the acquisition. If you finance the purchase, the loan you take out becomes a permanent line item that the business must service every month.


Ask a key question early: based on current and historical financial trends, can the business consistently generate enough cash to cover the new principal and interest payments?


Strengthen your analysis with sensitivity testing to understand how debt service might hold up if:

Financial results decline – sales slow, margins compress, or unexpected expenses appear.

Interest rates rise – variable-rate loans can increase your monthly obligations.


Past performance provides clues but no guarantees. A conservative, stress-tested cash flow model helps ensure the business can withstand bumps and still meet its debt obligations long after closing.


Acquiring Legacy Baggage


When buying a business you inherit not only the good but also the bad and depending on your acquisition structure, stock vs. asset, you’ll increase your exposure.


Stock sales you take on the historical liabilities and obligations of the previous owner. Effectively, Stock sales can transition the obligations of historical lawsuits, back taxes, or compliance penalties. Asset sale you’re generally starting with a clean slate and only the assets of the businesses are transitioning.


Regardless of the acquisition structure, if you’re planning on operating under the company’s name and leveraging the goodwill they’ve developed you’ll want to be sure you’re doing your due diligence on things like:


Digital & Online Presence

  • Email/Domain Blacklists: Beyond checking spam reputation, confirm that the company’s email servers and IP addresses aren’t blacklisted (e.g., Spamhaus, Barracuda).
  • Website Ownership & History: Verify the WHOIS record and use tools like Wayback Machine to see prior content. Past inappropriate content (e.g., adult, counterfeit goods) can hurt SEO and brand credibility.
  • SEO Health & Backlinks: Audit toxic backlinks, keyword stuffing, or black-hat SEO tactics that could trigger search engine penalties.
  • Social Media Accounts: Review past posts, comments, and follower engagement for anything that might damage the brand or signal bot activity.


Brand & Legal Reputation

  • Trademark/Intellectual Property Issues: Confirm trademarks are registered and free of disputes or oppositions. Look for prior cease-and-desist letters or pending claims.
  • Litigation & Regulatory Records: Search federal, state, and local court databases for lawsuits, liens, or settlements. Include employment-related claims or industry-specific regulatory actions (e.g., FTC, state consumer agencies).
  • Supplier & Partner Relationships: Contact key suppliers and vendors to gauge satisfaction and identify any long-standing conflicts or unpaid obligations that could affect ongoing relationships.


Stakeholder & Market Perception

  • Employee Sentiment & Turnover: Check Glassdoor, Indeed, and LinkedIn for reviews and turnover trends. High churn or negative culture comments can affect customer service and growth.
  • Key Customer & Referral Channels: Interview a sample of major customers or referral sources to validate loyalty and willingness to continue after the sale.
  • Industry Reputation & Peer Feedback: Speak with trade association contacts, local chambers of commerce, or industry peers to detect reputational red flags not visible online.


Operational & Financial Signaling

  • Payment Processor & Bank Relationships: Look for any terminated merchant accounts, chargeback issues, or unusual banking relationships that might affect credit card processing or financing.
  • Vendor & Landlord References: Confirm on-time payments, lease compliance, and that landlords view the business as a reliable tenant.


Broader Compliance & Risk Checks

  • Environmental, Health, and Safety Records: For manufacturing, food, or healthcare, review environmental compliance, OSHA reports, and inspection records.
  • Data Privacy & Security: If the business collects customer data, review GDPR/CCPA practices, past breaches, or complaints.


Time & Lifestyle Commitment


It’s critical to factor in the personal time and lifestyle impact. Entrepreneurship offers the promise of long-term flexibility, but in the early stages ownership is anything but passive.


Expect 60-hour workweeks, missed vacations, and constant decision-making as you stabilize operations and build a reliable team. While it’s possible to create a business that eventually runs with minimal oversight, reaching that point takes sustained effort and discipline. Understanding this commitment upfront helps set realistic expectations and avoids burnout after the deal closes.