Decreased risk means increased business valuation
We have recently revised upward a number of business valuations where over a period of time and some dedicated resources focused on key recommendations from our initial review we have been able to decrease risk areas within the business. Our process identifies 24 areas of potential risk for business owners and we can then identify those that are not adequately managed within the business and make recommendations about implementing the appropriate changes to reduce the risk. The risk reward ratio is important in business valuation and if we can reduce the risk we can increase the valuation. We have several client examples where working with a team over a 12 to 24 month period has added more than $500,000 of increased value into a business.
Read more How to value a business
Some of the key risk areas which produce this kind of reward are reducing business dependence on a key person, locking in the key staff throughout the business via use of employee equity plan and focusing on business financials to reduce risk (often including debt and gearing levels but also often examining product mix and profitability ).
Whilst this project can take several years the increase in sale/exit value for the business can be substantial and provide funds required for retirement or exit of the business owner.
Decreased risk means increased business valuation was last modified: January 7th, 2014 by Craig West
Business Valuation using an EBIT multiple (14.4)
Business Valuation – the Facebook example – PE ratio of over 67 (10)
Valuation – Public companies versus privately held businesses – a few issues (8.8)