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How Does Business Valuation Affect Your Fixed Commitments |
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Written by admin
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Monday, 07 May 2007 |
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The very attractive business valuation is a trap if its pushes up your head count. Conditions tend to change, but people, especially the ones you no longer need, do not go away for free! Countries with militant labor are the worst in this respect. You could be saddled with armies of blue collar workers who drag the enterprise down a bottomless pit. Some emerging economies intentionally lure you with incentives to make your business valuation look good, whereas the real agenda is to get you to provide jobs to scores of people without skills, and with mounting demands to boot!
Markets with unequivocal intellectual property protection are happy grounds for business valuation prospectors because they let you deploy resources in flexible ways. The chances of capital losses are much lower in such environments, even if returns appear to be pedestrian. This aspect needs some discretion on your part, because many business valuation models assume a greater variability in personnel expenses than can turn out to be the case in real life. Have you ever seen a business valuation report with a future redundancy settlement claim built in? It is not with staff costs alone - many items of rent, business promotion expenses, and travel costs become semi-fixed over times. You may even find it hard to cut back on Xerox and stationery expenses after you have approved a business valuation proposal! Perhaps you should question the treatment of all significant expenses in a business valuation, and find out the durations for which you have to commit to foot the bills. Check the fine print to ensure that you can really exit an expense head when you need to.
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