Identifying Risks When Valuing Your Business

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Identifying Risks When Valuing Your Business

When valuing your business for the market, it is imperative that all risk factors be identified before any owner even considers speaking to a buyer. Anyone considering purchasing your business will want to know about any potential pitfall or hindrance with which he will have to deal after he signs on the dotted line. This is why it cannot be avoided, and an owner must do his due diligence and identify all risk factors involved in their company.

Some risk factors can be eliminated by identifying and removing them. However, there are other risk factors that are inherent to the business or industry, and they cannot be remedied in a permanent manner. It is better for an owner and their broker to identify these risks so that any objection from a buyer can be answered.

Taxes are a prime example of a risk involved in purchasing a business. Unless all necessary paperwork has been filed and all taxes are up to date, liabilities that exist will be transferred to the new owner. A savvy buyer will want to know up front is all of the books are prepared and updated, as he will not want to oblige himself to purchase a business with any discrepancy in regard to taxes.

Another risk involved would be client concentration. If a company stays afloat merely from the business of a handful of clients, the appeal to potential buyers will drop dramatically. Markets are always in constant flux, and people and companies, at will, can take their business elsewhere at any time. If your business’s portion of the market is not as broad, it will be more difficult to find a buyer that is looking for guaranteed returns and financial security.

Not every owner has enough time and expertise to identify all of these risk factors alone. This is why it is important to hire an experienced business broker to help you with this arduous task. Contact Moshe Hazout at Transworld Business Advisors today!

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