November 7

Your business is at risk!

Stay safe! Wash your hands. Safe travels.  Slippery when wet!  Slippery when icy! Steep road ahead!  Take care now.

We are surrounded by safety messages daily.  We follow these instructions to avoid becoming sick. We pay attention to road signs to avoid accidents.  We take care.

Because we know there is a risk.  But what about risks to your business? Quoting Warren Buffet, the American business magnate, investor, and philanthropist,

“Risk comes from not knowing what you’re doing.”

Damage by fire, flood or other natural disasters, unexpected financial loss due to an economic downturn, bankruptcy of other businesses that owe you money, loss of important suppliers or customers. Decrease in market share because new competitors or products enter the market. These are examples of business risk.

Whew! It’s a wonder that entrepreneurs go into business!

In business, risk is the main cause of uncertainty. Thus, companies increasingly focus more on identifying risks and managing them before they can affect the business. The ability to manage risk will help companies act more confidently in future business decisions. Widely, risks can be classified into three types.

Business Risk

Business risk implies business failure resulting from uncertainty in profits, danger of loss and events that could pose a risk due to some unforeseen events in future.  For example, there is marketing risk examples include those which may arise due to fluctuations in market prices, changing trends and fashions and errors in sales forecasting. 

In transactions, business risk arises from a lack understanding of the value of your business.  In a negotiation the strongest position is, as the Oracle of Omaha suggests, in the knowing.  Not knowing the value of your business could lead to losses resulting from the over-payment for, or receiving less than, the value.

Operational Risk

Operational risks that could affect a business include pandemics, floods, and other weather events. Conduct risk means the behavior of the corporation’s employees leads to losses. Cyber risk and IT risk are possible losses due to security breaches. Compliance risks are risks related to governance, risk management, and compliance.  These risks can be recognized, valued and mitigated.

Financial Risk

Financial risk refers to your business’ ability to manage your debt and fulfill your financial obligations. This type of risk typically arises due to instabilities, losses in the financial market or movements in stock prices, currencies, and interest rates.

No Risk No Reward

Successful entrepreneurs see risk as opportunities for success.  Risk when entering new markets.  Risk when expanding the operations.  Risk when diversifying product offerings.  Mitigating risk yields success.  Just like mountains range that lies beyond the slippery road sign, risk is opportunity when managed.

In times of uncertainty, consult a professional. We value businesses. Why accept the risk if you know what and who to engage with. Talk to us for expert advice on managing risk on the value of your business.


Tags

business value, Money, Troy Valuations, Value


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