Just like no two individual people are the same, no two businesses are the same.
Even businesses in the same industry with a similar turn over, profit and cash flow can have very difference risk profiles.
This is the 1st part in a three-part series I am working on that focusses on the topic of risky business.
What is a risky business?
So what is a risky business and why is knowing about it so important? What are the risks I am referring to and how can they be identified and managed?
Risks associated with businesses affect the value of those businesses. Put simply the risker businesses are worth a less.
This is because the prospective buyer has a greater chance of recovering their investment from a less risky business.
So what are the risks that affect businesses?
The risks can be put into the following major categories.
- Industry – some industries are under threat, others are not. Think video libraries.
- Regional – some areas are prone to boom & bust, while others are more stable.
- Business-specific:
- Owner reliance
- Staff specialist skills
- Customer concentration
- Business and management systems
To see how these risks affect the plan of a business we will compare two fictional businesses in the same industry. These two businesses have the same turnover and profit, but with vastly different risk profiles.
I will be posting more about the two businesses next week, so make sure you sign to my blog or follow us on Facebook to access this information. Sign up at the top of the page or follow us on facebook to see the next story!