Liquidity Risk relates to the factors that can disrupt the ease of converting an asset into cash. This risk involves the difficulty or ease with which an asset can be converted into cash. The more difficult it is to convert an asset into cash, the higher the liquidity risk and vice versa. The higher the liquidity risk, the lower the fair market value of the business and vice versa, all things being equal. Business valuators account for liquidity risks associated with a business or an interest in a business by applying a discount for lack of liquidity. This discount is an additional discount applied after the discount for lack of marketability which is associated with valuation of a closely held business.