Question

1. Discuss risk factors and their impact on valuation.
   

Answer 1

Considering risk is the predominant factor in valuing business. The following are some factors and impact on valuation :

Labour : Consider the age , technical skills of the employees for example. This is because , if the company is highly technical,there may not be many individuals in the area that have those skills and, thus, make it difficult for the company to grow.

Management : Whether the key management stay in the organization once the company changes the ownership.

Financial Strength : Some ratio analysis can tell you what kind of financial position the company .If you have no idea what the future costs are going to be, you can’t make any kind of meaningful future projections or budgets.

Diversity of Accounts : Many companies have one account that equals a large portion of their business. If these accounts are under contract for several year, a buyer may be hard to find.

Competition : How much strong is the competition in the industry?

Predictability

Marketability : How much difficult is to sell the company ? How many buyers are interest in the business ?

These are some risk factors and their impact on valuation.