subject: Good Business Plan Tips: Handling Risks [print this page] Author: Eric Powers Author: Eric Powers
Writing in detail about the risks and potential pitfalls that face your business in your business plan may not be intuitive. After all, isnt this document a sales tool with which you hope to convince funders that the business is more or less a sure thing? Why would you want to talk about problems which can potentially derail your plans for business success?
What is a Risk?
A risk is a potential future outcome. While risk by definition can be positive as well as negative potential outcomes, it is generally considered to refer to the negative in popular usage. It is the negative side of risk that deserves a specific focus here, as talking up the positive potential outcomes for your business generally comes naturally for an enthusiastic entrepreneur.
Due Diligence
The reason you do want to describe risks throughout the plan, or in a separate section with the plan, is that professional investors and funders will do their own due diligence. Due diligence is an independent investigation by the potential funder into business opportunity to check on the veracity of the business plan and come to their own conclusions about whether it is a good idea to invest or lend. If you leave key risks out of the plan and your readers go on to find out about them on their own, they will either believe you knew nothing about them and question your ability to research and manage going forward, or believe you tried to deceive them, which would certainly get your plan thrown out. As readers will learn about key risks on their own, better for you to address them up front.
Risk Mitigation
The best way to cover risks in your plan is to describe the nature of the risk and then describe exactly how the company will mitigate or lessen the risk for the company. While not all risks can be entirely eliminated, there are generally ways to lower the risk level. For example, holding insurance mitigates the risk of owing large amounts of money if legal claims are made against the company. Having additional revenue lines lowers the risk of the company being derailed if customer tastes change, much in the same way that a diversified investment portfolio lowers the risk for an investor. For every risk, speak to how you will work around that risk and make sure you do not contradict that risk mitigation effort with any other activities and tactics described in the plan.About the Author:
Eric Powers is associated with Growthink, a business plan consulting firm. Since 1999, Growthink has developed more than 2,000 professional business plans for entrepreneurs and business owners. Call 800-506-5728 today for a free consultation with a Growthink business plan consultant. Growthink also offers a proven business plan template.
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