Risks – Supply, Stock and Work In Progress
1. Just as overreliance on anyone product is a risk to future profits, so too is overreliance on anyone supply item or supplier. Supply should not be limited to materials. Supply covers broader items; plant and equipment, people and services and service providers. These are all aspects where limitations can impact profitability. For example, consider the impact on profits through the loss of electric power for an extended period in most businesses today.
2. Terms of trade can be beneficial if they favour the business cash flows. But, it should not be assumed that the present terms of trade will be made available to an incoming owner. Increased working capital requirements can be the result, placing downward pressure on business value.
3. Stock and work in progress (WIP) are areas where financial records can be “lose”. Stock and WIP ‘good and saleable’ are of value to a business enterprise; damaged obsolete and out of date items don’t add to the value of a business. Rather, they can work in reverse.
Disclaimer: The views expressed in this article are those of the Writer. The information is not meant to be exhaustive. Readers are responsible for making their own inquiries and assessments as to the truth and accuracy of all the information given and should seek advice from professionals. No liability (in contract, tort or otherwise) will be accepted for any loss or damage incurred as a result of reliance upon any material contained in this publication or any information or advice provided in this publication or incorporated in it.