DATE: October 08, 2018
There are several ways to accurately calculate the value of a business you intend to sell or buy. Many scenarios—on and off the balance sheet—can negatively or positively affect valuation. The valuation of your business is determined by a combination of Cash Flow Factors and Risk Factors.
Below are specific takeaways you can immediately implement to increase valuation while also reducing risk. Missed Part 1? View it here.
PART 2: Risk Factors that Impact Your Valuation
1. Customer Concentration
Reducing your dependence on any one or two customers minimizes risk and adds value.
2. Industry Concentration
Many industries cycle, and a company’s ability to diversify cyclicality risk enhances value.
3. Management Team
Buyers are interested in acquiring talent that is capable of operating the business and maintaining
customer relationships.
4. Regulatory Risk
Government regulations create opportunity and risk. If a pen stroke by a politician can severely impact
your business, find ways to diversify.
5. Foreign Currency Risk
If fluctuations in value of the dollar will materially impact your profits, hedge appropriately.
6. Project-Based Revenue Risk
Recurring revenue trumps project-based revenue. If the nature of your business is project-based, track and build a pipeline.
7. Obsolescence Risk
If you have the risk of a key product or service becoming obsolete, seek additional revenue streams.
8. Information Risk
Use credible security vendors to demonstrate that you prioritize protecting your client and business data.
9. Financial Statements
Transparent records substantiate claims of successful performance and support a higher valuation.
10. IT Data & Reporting
The ability to produce information on customers, suppliers, employees and products adds credibility to the story of your business.
To discuss your current range of value and likely buyers or investors, please contact us for a complimentary Market Value Assessment. Download this information as a PDF by clicking the image below.
