It’s amazing what one discovers in the process of cleaning out your study. I came across this tool that I had been working on that would give you an opportunity to start a conversation with your clients about the need to work on their business to reduce the degree of business risk. That, of course, would give cause to accept a lower capitalization rate and therefore a higher business value for any given level of profit.
The model that I was working on addresses 7 aspects of a business that contribute in varying degrees to the level of business risk. I have assigned weights to each of these elements based on MY opinion of their relative contribution to risk. You may disagree with the weights I have used but what’s important is not the weights, it’s the conversation around the factors themselves and what your client can do to reduce their impact.
I have built a simple spreadsheet that you could use as a framework for a conversation with your clients. All you need to do is input any character into the appropriate cell for each of the 9 questions and then discuss how you could help your client address the issue of business risk. This would be a particularly good conversation to have after you had discussed the relationship between profit, earnings multiples and business value.
As you know, my favorite saying is …. it all starts with a conversation. This is a conversation that could start something really significant for you and your clients.
This is what the Assessment Tool looks like. If you’d like to take a look at the tool let me know.