The term 'de-risk' was used in the financial arena in 2008-2009 after banks that were thought to be 'too big to fail'...began to fail! De-risking became the process of removing risky assets from a bank’s balance sheet and investment portfolios. The objective was to make sure the banks that did not fail at that time, would not fail in the future. The use of the term 'de-isk', in reference to other types of businesses is just catching on. RiskPoint Zone is one of the first to use it to refer to the process of making a business more stable and profitable in preparation for future growth or unanticipated Black Swan events. What are the benefits of de-risking a business or estate using a RiskPoint Analysis?
Identifying islands of risk that could lead to the failure of the business
The re-allocation to balance sheet assets to provide the resources to grow a business.
Increases profitability and cash flows
To make debt financing a feasible option where it hasn't been in the past.
To make equity financing a feasible option
As risk is demonstrably reduced, the valuation of the business increases.
Allows owners and executives to sleep at night.
Dr. Peter Drucker said: “The first duty of business is to survive — and the guiding principle of business economics is not the maximization of profits — it is the avoidance of loss.”
If you accept what Dr. Drucker said, then de-risking a business is the first step that must be completed before any meaningful growth or exit initiative should be attempted.
A RiskPoint Analysis is an organized and proprietary application for de-risking a business. A Riskpoint Analysis address risks at the level of RiskPoints, RiskDefinitions. It then allows for the rating of the current condition, and setting objectives that are acceptable to owners, and lenders using Risk RatinglRules. It then helps owners build and track a plan to derisk the RiskPoints in order to achieve those objectives.
De-risking a business using a RiskPoint Analysis could save owners millions in losses or in future benefits.