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How to Master Risk

by on September 17, 2014

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I come across companies all the time that aren’t aware of the many risk factors that suppress or drive business value in the eyes of potential investors or acquirers.

What is “Risk” anyway?

Everyone acknowledges it but no one really pays much attention to it.

It’s boils down to LIKELIHOOD and SERIOUSNESS

How likely is it that something negative will happen?

How serious will it be that negative does happen?

By looking at risk issues this way we can take steps to reduce the likelihood that something serious will happen.

Risk in the Strategic Plan

Have you ever applied this thinking to your business and your strategic plan/vision?

Look at Planning, Sales, People, Finance, Leadership, Marketing, Operations, and Legal.  It’s like getting a corporate EKG or a physical.

Have you identified and neutralized red flag threats to your enterprise value?

73.4% of businesses have red flags threatening their value.

95% of companies have at least one red flag threat to their ability to monetize.

When you look at the Risk inherent in your organization evaluate the issues in terms of LIKELIHOOD and SERIOUSNESS, giving it financial weighting.

Weight Risks based on Business Impact

Analyze your risks to determine the impact on your business and break those risks and steps into three different categories:

1. Quick Wins – steps to take in the next quarter or two to PROTECT the company from risks that could threaten its viability

2. Accelerate – steps to take in the next 6-18 months to ENHANCE the company’s existing core operations

3. Long Term Amplifiers – steps to take in the next 2-3 years to POSITION the company for long-term, sustainable, profitable, growth

If you are hitting on all cylinders in your implementation of these Valuation Amplifiers an opportunity to exit may come sooner than planned.

Often those inside the company are too close to the problem and therefore unable to see how to apply these simple processes or how to refine them when the situation changes.

With bigger companies comes increased complexity, and opinions, and fog.  Sometimes the best opportunities are buried away just waiting to be uncovered.

The trickiest part is identifying the correct amplifiers to focus on and leverage.  They’re different in each company and identifying them is the most important part.

Valuation Amplification

If you’re wondering how you build a company that you can sell it for premium in a few years, contact me to discuss the Valuation Amplification Process.  I also invite you to download the FREE white paper and find out How to Quickly Increase Your Valuation by Thinking and Acting Like A PE Firm.


From → Strategy, Valuation

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