Posts tagged with: risk

Is Your Business at Risk?

It’s a tough market for potential sellers. Are you making it tougher? Is your business at risk?

Too Many Businesses Are At Risk

Did you know that for every 100 businesses in the lower middle market:

80%       of companies are not ready for a transaction. When they approach an intermediary (broker, IB, M&A)
they get turned away. (80 not ready)

40%      of the remaining 20% will fail as well from poor planning/preparation. (8 fail)

>50%    of M&A transactions fail because of low valuations (<$5M). (6 fail)
             We can double those valuations in the years leading up to a transaction

>80%    of mergers and acquisitions never meet their long-term objectives.
              (9 never hit long-term objectives)

50%       of sellers are already under compulsion to sell when they reach out to an M&A. (3 compelled to sell)

That leaves <3 who prepare, sell successfully, and meet long term goals.

 

Will you be one of those 3:100?

How?

1.You can proceed alone and assume all the risks,

OR

2.You can reduce risk, maximize value and follow a holistic 4 step process using tools that drive value, to meet all your objectives. Check out Build Your Business Value to get started.

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ROI – What Can You Control?

Return on Investment (ROI) is a measure of the economic return an investor or buyer requires for a given investment.  In the case of your business, the investor or buyer wants to know they’ll receive a specified return in a specified amount of time following a projected timeline and milestones.

ROI is directly related to the risks inherent in running a specific business in a specific industry. As you built and grew your business, you absorbed these risks, and accepted them as a cost of doing business.

But did you ever track those costs? Did you track the impact on your ROI? Can you measure the effect – good or bad – on your sales growth, market penetration,  profit margin? Can you quantify them?

Som ROI – What Can You Control?e of the variables that effect ROI are within in your control. Some of the variables are outside your control but still impact your business, your economics and your ROI.

Everything that can change your ROI, has a direct effect on what a buyer will perceive your business is worth. It’s your job to showcase your business in the best light for the buyer to say yes on your terms.

Here is a Range of Risks buyers will assess. How well does your business handle each one? How can you sell that position to a buyer?

  • Economic Changes
    • Economic downturn – Economic slowdown
    • Rising interest rates
    • Decrease in target market spending
  • Industry Changes
    • Regulatory / government changes
    • Increased competition
    • Threat of foreign entrants
    • Expansion into foreign markets
  • Business Changes
    • Regulatory / government changes
    • Loss of key customers / vendors / team members
    • Substitute goods / product obsolescence
    • New opportunities / new product lines
  • Natural Disasters
    • Earthquake
    • Hurricane
    • Flood
  • Personal Changes
    • Health problems
    • Divorce
    • Exit Timeline

To maximize ROI to a buyer, you must have contingency plans in place for these key risks. To demonstrate that value to the buyer, be sure they are all documented, not just in your head. That’s how you’ll command the full value for your business and come to the negotiating table from a position of strength.

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