Value and Risk Factors
What Kind of Factors?
Over the past few weeks, we have discussed several factors that can add or reduce risk to the value of your aviation business. Specifically to date we have taken a look at:
But there are many other areas in the business that should be considered as well.
Risk Areas
Without going into a great deal of detail, here is a list of other factors that a valuator may consider or a potential buyer may look at when assessing your business that can add risk to or detract risk from your company.
- Competition
- Diversification or lack thereof
- Customer pricing leverage
- Supplier pricing leverage
- Distribution channels
- Expected cash flows
- Access to capital
- The age and condition of fixed assets
- Culture of the company
- Legal or litigation issues
- Location
- Demographics
- Size of the business
- Strength of intangible assets
- Life cycle of technology
These are just a few more key areas that could play a role in the value of the business, but each of these deserves a closer look and its respective impact should be weighed.
A Plus or a Minus?
Each of these potential areas of risk can either add risk or reduce it. For example if we take a look at your fixed assets:
- Are they badly in need of repair or replacement, generating more risk since there is the potential of an emergency repair or replacement that could add expense and/or take away time?
- Or have recent investments been made in fixed assets, reducing the likelihood of a need to spend additional monies or time in that area?
Fixed assets are quite tangible and it can be relatively straightforward to assess how they might affect value, but some of these items have a more subjective effect. One such example is corporate culture:
- Is your aviation business a positive place where a team attitude means that people pitch in to get the job done? That can add value.
- Or is it a place where everyone looks out only for him or herself and doesn’t really care about the quality of what gets done?
There is much more that could be explored in regards to corporate culture and how it can affect the value of your business. In fact, each of the areas listed above should be observed and assessed as to what risk they present to the company. The added benefit is that by mitigating risk the value of your business grows, but it can also provide a road map for development and overall improvements to your aviation business.
