Buying a business, or investing in one, can be risky. What are these risks? Of course some of them are physical. Could the buildings be damaged by fire? Is there a manufacturing process associated with serious financial liabilities? There are technological risks as well. How secure is a business’ data and what’s the back-up plan for when the system is down? In addition to this there are the business risks. Will consumer trends change in a way that’s favorable or unfavorable to the business? Will people be interested in this product/service at all?
If you’re in the position of selling your business or trying to interest investors in your enterprise, you need to be considering these risks before they do. Any investor or buyer is going to want to know just what kind of risk they’re buying into, and you should know what kind of risk you’re selling so that you can address all concerns comprehensively.
When putting together a business’ risk profile, it’s important to consult with management as well as owners. Not only this, but bring in your most trusted external advisors like your bookkeeping services professionals and legal advisors.
Go through your operations with a fine-tooth comb and compile potential risk factors (physical, occupational, and business) that will be of interest to investors. After you’ve put together a full list with the insight of your management, bookkeeping services providers and lawyers, it’s time to rank your risk factors.
This will be done by considering the seriousness of each risk against its likelihood. Your offices being hit by a meteor from outer space would garner a high grade on the seriousness matrix, but a low grade on likelihood. According to bizjournals.com, each risk factor should be scored (with two grades, each between 1 and 5) for both it’s severity and it’s likelihood. These two scores should then be multiplied together to provide a general risk score between 1 and 25. High priority will go to risks that rank high in both categories.
Afterwards, discuss with your bookkeeping services professionals and your other advisors, how you can best mitigate these risks, allotting resources to each risk based on its ranking.
Remember, no wise buyer or investor is expecting your business to be risk free. As they say, nothing ventured, nothing gained. But showing your investors that you understand the risks, have ranked them, and have done all you can to mitigate them will build their confidence in you and your business.