You can improve your company’s financial health, value (and salability) by reducing risk.
When you think about 2023 budgets, consider how you can optimize your company’s profits by removing or reducing risks.
Recently a friend of mine (male in his late 50s) visited his long-time doctor for his annual physical. His doctor prescribed some additional tests to check for common problems, take some medications and supplements to mitigate some existing problems, and check back with her. While he wasn’t thrilled about the time the follow-up tests and visits might take, he was glad to be working toward better health and having a chance to prevent problems so he can live a longer, healthier life. Since both of us had parents who lived into their 90s despite chronic blood pressure problems, we appreciate early warning systems and modern prescription drugs.
Your business is exposed to risks that you can manage or avoid via an annual or more frequent “checkup.” Just like with your annual physical, you probably know some of the risks you are exposed to and are acting on, but there may be others you could mitigate or eliminate. Being aware of and managing these risks builds a strong company and benefits you, your customers, your employees, and all of your stakeholders. These are in no particular order:
- Market risk – what is the size of your market? How are you positioned in comparison to your competition? Are you located in an area that no longer has the number and types of customers that you are built to serve? How can you pivot to take advantage of your company’s strengths and begin offering a new set of services to existing customers or develop a product or service that your customers will be interested in?
- Owner dependency risk – are you the only person who can make decisions in your company? If you aren’t out meeting customers, managing employees and in the office most of the time will the company survive? If not, you and your company are exposed to great risk if something happens to you. In addition, if you aren’t in the first year or two of your company, you are probably holding the company back by not delegating.
- Human resources risk – the variety of risks you could be exposing your company to in this area are many, and some of these can be mitigated by EPLI. Our HR Harvester Steve will be happy to explain! We are in a people business and the labor market is notoriously tight, if you don’t have key HR roles focused on recruiting, retaining, onboarding, training, compensation, rewards, benefits, etc. you could be at risk of not being able to deliver services due to a lack of recruiting and/or training, high turnover, poor management practices, etc.
- Operations risk – are your processes and procedures the most efficient available? Do you have technology applied in your company so that you aren’t wasting customer, employee and management time and effectiveness to optimize your outputs?
- Financial risk – when is the last time you had an “outside in” view of your financial statements? Are you aware of your gross margins and are they within or beating industry standards? Are your prices set correctly? Are your accounting processes and personnel well trained and delivering timely and accurate reports? How do you know if there is any internal mishandling of your finances?
Finally, from a potential buyer’s perspective the greater the risk, the higher the required return. That translates to the higher the risk your company presents, the lower your price! If your business is riskier than a similar company, you can expect to receive a lower price if you sell the company. Your buyer/investor will expect to receive a higher return for that risk exposure.
If you’d like to discuss the risks your company is exposed to and how you can manage those to position your company for sale, please do give us a call. Fortune favors the prepared mind. (Louis Pasteur) It’s never too early to prepare your mind to build a stronger company.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
We’re here to help you Harvest Your Potential!
