The 'economist-ic' explanation is 1) diversification 2) agent-principal problem 3) asymmetric information (books are cooked, owner is selling because something

The 'economist-ic' explanation is 1) diversification 2) agent-principal problem 3) asymmetric information (books are cooked, owner is selling because something is about to hit the fan). Investors and business brokers deal with them by 1) low prices / earnings multiples, not putting your entire net worth into a small business 2) as OP suggests, you either manage it yourself or somehow have loyal staff with skin in the game 3) earn-outs for original owner who gets paid out over time from earnings after successful transfer. Because of the risks, small businesses sell cheap relative to earnings, often fail not long after they are sold.