Risks

Subsection of: Creating an Effective Business Plan

Adapted from content excerpted from the American Express® OPEN Small Business Network

“No business is without risk,” Bella thought when she sat down to write her risk analysis. “But do I really want to detail all my anxieties about my business for a potential investor?”

Which of the following statements would Bella want to include in her risks section?

Choice A:

Although Bella’s Biscotti is the only company currently producing biscotti in unique flavors such as Macadamia Nut, we are aware that other companies could follow on our success. On the other end, people may not like our product. We are also aware that we may be too dependent on one contract baker – Center City Confections – and we would have production problems if they folded or dropped us as a client.

Choice B:

No one else in the Metro City area produces a high-quality cookie comparable to Bella’s Biscotti, so we expect to dominate the market. Therefore, the company anticipates no significant risks for Bella’s Biscotti.

Choice C:

Bella’s Biscotti sees the following risks:

• Losing our competitive advantage – Although Bella’s Biscotti is the only company currently producing biscotti in unique flavors such as Macadamia Nut, the company is aware that other cookie makers could follow on our success. Bella’s plans to stay one step ahead of the competition by introducing at least two new flavors every year.
• People don’t like our product. There’s always the risk in the food industry that people won’t enjoy a product. Bella’s Biscotti conducted extensive market research, including multiple focus groups, to gauge public reaction. Over 79% of respondents said they would be willing to purchase the product themselves, or recommend it to someone else. The company plans to continue this type of research.
• Dependency on Center City Confections as our contract bakery. The company feels confident that CCC will remain loyal to Bella’s Biscotti because they have an equity interest in the company’s success.
• Failure to generate publicity through “Biscotti Day.” Much of Bella’s Biscotti’s advertising and publicity budget is tied up in “Biscotti Day.” While the company feels secure that Biscotti Day will be a success, it has created contingency plans with Figgis Communications, its advertising/PR counsel, that will focus more directly on traditional tactics.

You Chose A

Bella has listed three very serious risks, but she’s forgotten one key point – what her company is doing to make sure these risks don’t become reality. When you write your risks section, do more than just identify and discuss your risks; show that you can confront these problems head-on and handle them with aplomb.

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You Chose B

Saying your business anticipates no significant risk is a major mistake. Every company has risks, especially start-ups. You might think that showing this kind of confidence will impress financing sources, but that’s hardly the case. Your ability to identify and discuss risks will demonstrate your skills as a manager and will increase your credibility with potential investors. If you think your business is without risk, re-read your business plan and look for any assumptions you’ve made about your company or the market – the flipside of these assumptions are your risks.

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You Chose C

This is an excellent description of Bella’s Biscotti’s risks. Note how the company not only identifies the risks, but shows how it has already taken action to minimize their impact. Potential investors like to see this kind of honest analysis coupled with proactive planning.

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