Tuesday, April 24, 2012

Factor #10 of 10: Risk model


Risk profile

In the Self-Assessment, we asked you this question:

  1. Our business is supported by:
    1. clear and understandable operations and process manuals our management team established through detailed assessment and analysis. The appropriate response for the majority of situations is documented, allowing individuals not involved in the day-to-day operation to understand and complete appropriate operational decisions.
    1. by a clear and understandable operations manual where existing management would be required to assist in determining the appropriate responses to situations.
    2. an operations manual and a management team who generally make good operational decisions.
    1. a management team which is under development and an operations manual that is a “work in progress”.
    1. my knowledge as the business owner. The buyer from outside the business would require considerable training to understand this business.

The area of risk modeling is typically subject to the highest level of personal interpretation. What one individual would consider a very reliable business model would have another individual losing sleep every night. The fact is any business model has an element of risk. Every buyer has to develop a sense of the risk realities for the business. To overcome the challenge of educating a buyer, the business owner must accurately describe how the business model actually works. A clear description of the day to day process and business variables allows every buyer to develop their personal translation of the business risk.

An experienced business owner will disclose to the buyer the strengths and weaknesses of the business model early in the discussion. This saves time and avoids misunderstandings about the business reality. It is definitely in the business owner's interest to have a buyer that understands and is comfortable with the risk model. A well described business model which includes identifying the business strengths and weaknesses significantly increases the opportunity to complete the sale of business.

Conclusion:
As the business owner you must communicate the full and realistic picture of what your business actually provides to generate revenues. Regardless of which model you have, the buyer must develop a clear understanding of the business realities early in the process. Being prepared saves you and the potential buyer valuable time. Your goal is to have everyone at the negotiations table working with the same business model expectations. Clear sources of revenues position your business to a higher level of sale-ability. 

At MAXIMA we offer our clients use of our tool: the Business Success Tool Kit (BSTK). We complete an in depth comparison of their financials year over year and/or month over month, in order to pin point where the financial weaknesses are and what could be improved. This effectively grooms your company over time so when you are ready to think about exiting you have financial statements that are clean and ready to sell. Please call 403-234-8346 if you are interested in utilizing this tool.

The MAXIMA Group will “Sell Your Business”| If your business is not ready to sell, we will help you “Groom your Business” | The MAXIMA Group helps you to “Buy a Business” | The MAXIMA Group completes “Business Valuations” (CBV)