Subsection of: Creating an Effective Business Plan
Adapted from content excerpted from the American Express® OPEN Small Business Network
No business is without risks. Your ability to identify and discuss them demonstrates your skills as a manager and increases your credibility with potential investors. You will show that you’ve taken the initiative to confront these issues and are capable of handling them. The opposite is also true. Should a potential investor discover any unstated negative factors, it will undermine the credibility of your plan and endanger your chances of gaining financing or other support.
The following list of problems is by no means complete, but should give you an idea of some possibilities.
| Your competitors cut their prices | |
| A key customer cancels a contract | |
| The industry’s growth rate drops | |
| Design or manufacturing costs exceed your projections | |
| Your sales projections are not achieved | |
| An important ad campaign flounders | |
| Important subcontractors fail to make deliveries | |
| Your competitors up-the-ante by releasing a new, better product or service | |
| Public opinion of your product or service changes | |
| You can’t find trained labor |
Tips
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- Evaluate your risks honestly. Put yourself in a “what if” situation. What if my competition meets my Unique Selling Proposition…what sets my product apart? What if I can’t find the right employees?
- Instead of putting your risks in a separate section, you can incorporate them into the various parts of your plan. For instance, you could discuss possible long lead times for subcontracted parts in the “manufacturing process” section of the plan, or the impact of a lower than anticipated response rate to a direct mail campaign in the “sales tactics” section.
- In many industries, small companies innovate and large companies copy and take the credit. This is always a risk you need to consider. Think of ways you can stay ahead of your competition and retain your Unique Selling Proposition.
- To generate a complete list of risks, examine all of your assumptions about how your business will develop. The flipside of many of them may be risks.
- Consider some commonly-made small business mistakes as potential risks. Some of the biggies include: paying employees too much; hiring friends rather than the most qualified candidates to fill positions; underestimating costs; underestimating the sales cycle; overlooking competition; trying to be all things to all customers.
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