When most founders or business owners think about growing the value of their company, they jump straight to revenue targets, market expansion, or new product launches. And that makes sense: growth is exciting. But there’s another side of the valuation equation that’s just as important and far more often neglected: risk.
As we’ve said elsewhere, the value of a business is essentially a function of its earnings divided by risk. That means that even if your revenue and profit are rising, increasing risk - or failing to manage existing risks - can quietly drag your valuation down. You might not notice it in day-to-day operations, but when it comes time to raise capital, sell the business, or take on a partner, those risks suddenly become very real.
So what are some of the common business risks that can erode value?
1. Customer Concentration
If most of your revenue comes from just one or two clients, your business is seen as vulnerable. Even if those clients are loyal now, any change - budget cuts, leadership changes, or lost tenders - could sink your business overnight.
2. Lack of Financial Controls
Weak internal controls, sloppy bookkeeping, or no proper financial oversight makes it hard to trust the reported earnings. For investors, this introduces doubt: will future earnings be consistent and reliable? Without clear systems in place, value drops.
3. Key Person Dependency
If your business can't run without one individual (often the founder) that’s a red flag. Buyers and investors want businesses that are sustainable, scalable, and not reliant on one person to hold everything together.
4. Legal and Regulatory Exposure
Unresolved tax issues, non-compliance with labour laws, or fuzzy contracts can create serious liabilities. These don't just reduce your value: they can sometimes kill a deal entirely.
5. Operational Fragility
No backup power, outdated systems, single suppliers, or overworked teams: these may seem manageable day-to-day, but they signal fragility. When something goes wrong (and it will), these weak points can cause costly downtime or loss of reputation.
6. Reputation Risk
In the digital age, a single bad review, PR misstep, or ethical concern can spread quickly and affect customer trust. If your brand depends heavily on goodwill, protecting your reputation is protecting your value.
7. Poor Record-Keeping and Governance
Missing shareholder agreements, messy accounts, unclear ownership structures, and informal employment relationships might not affect your day-to-day, but they’ll absolutely show up during due diligence - and they’ll reduce your business’s appeal to any serious investor.
In short: yes, chase growth. But don’t forget the other side of the valuation coin. Proactively identifying and managing business risks is one of the most effective ways to preserve and increase your company’s value over time. It's not glamorous, but it’s what separates short-term hustles from long-term assets.