Risk And The Effect On Healthy Business Valuations You Can Retire On

INTRODUCTION:

For many that wish to build a business and then sell it, the natural desire is to make sure you have something to sell and then try and maximise it particularly if you wish to use the proceeds as part of your retirement. What this means is that you need to address the risky parts of your business. Risk is present in many parts of your business. Here are a few that you might want to answer and then take action accordingly. 

Figure 1: Do you have a 'risky business'?

1. Cost Of Supplies

Are your supplies materially affected by inflation and/or exchange rates? If so, how do you manage these risks? It could be a case of hedging or shoring up supplier contracts with fixed price adjustments but being able to show that these risks can be managed will only increase your business valuation.

2. Location Of Customers

Where are the majority of your customers located? If they are in a depressed geographically located area this will bring your multiple down. If they are spread over many regions or they can be shown to be in strong areas this will give you buyers some confidence. Have you ever analysed your customers by:

• number of customers;
• % of total revenue by top 10 customers (if this is high you could be considered high risk if they leave, sell or go out of business);
• location;
• number of years they have been a customer of your business.

Figure 2: Do you really know what your customers look like or are they a master in disguise?

3. Government Legislation

Are the supplies you make protected by government legislation? If they aren't, this could mean that it will be easier for competitors to enter the market.

4. Products/Services Threats

Are the products and services you offer threatened by imports? What would be the difference between your products/services to imports if they can easily enter the market. What would be your competitive advantage so that you don't lose any market share?

5. Technology

We have see what the internet has done to many industries including the taxi, communications and Gregory's Street Directory just as an example. Is technology a threat with what you offer and how do you stay on top of this? Small business accountants Sydney and all over Australia are seeing changes in technology which is affecting traditional services being offered. Have you embraced technology or are you sticking your head in the sand?

6. Suppliers

CONCLUSION:

Business valuers will always assess business risk when performing business valuations and your business will be no different. Have you really sat down and assessed your business risk?

You owe yourself to do something about it now and not only reap the rewards later when you go to sell but also in the meantime!