Managing risk is key to one day receiving a premium valuation
In a recent podcast, retired General Stanley McChrystal shared his definition of Risk. He offered that Threats x Vulnerabilities = Risk.
As business leaders this formula applies in our world as well. Ask yourself this question – what threats to my business am I aware exist and where is my company vulnerable to them? The answer defines your known risk.
This is important to identify for both an obvious reason but also a less obvious one. The obvious one is it makes good business sense to work with your team to monitor threats and vulnerabilities and take steps to negate or minimize them for the purpose of protecting the value, or worth, of your company. The less obvious reason is when the day comes to try and sell your business to a third party, they may be aware of potential external threats a company like yours faces and will expect to hear your insights, even your plans, about how your company is already or is planning to address them. Not being able to articulate your plans to address the threat(s) could negatively impact the valuation they place on your business.
Here are steps you should think about taking soon:
- Meet with your leadership team and brainstorm the threats and vulnerabilities you have line of sight to either currently underway or could have a high probability of happening in the foreseeable future.
- Talk with your advisors and get their external perspective on threats they believe a company like yours could face.
- Talk with select customers or suppliers and see what their perspective is regarding threats in your industry.
- Follow one of your industry think tanks as they are very good at predicting industry threats and opportunities.
Use time as a friend in monitoring the risks to your business. And determine those that you should take action soon and those that you should be monitoring closely – both great steps in the early stages of ensuring your company is prepared to one day help you be euphoric from its future sale event.