Risk Factors: The Forgotten Section in Business Plans
Date: 03/13/17 By: PlanIt Business Team
What are “Risk Factors” and why you need them in your business plan? Before we can answer these questions, we need to understand what your business plan is being used for and whom will be reading it. For example, most of our clients require a business plan to present to a potential investor; and investors are seeking to identify risks in your business plan and have those questions of risk answered. Generally, after an investor has identified that he/she likes your business plan, they are trying to ask questions as a means of ticking off all of the risk factors on their list.
When you are developing your business plan, it is a good idea to think like an investor – if you were asked to invest in your business plan – which areas would give you the most concerns? If you are not used to thinking like an investor, think about your business and what keeps you up at night about it? Whatever keeps you up at night, are most likely going to be great risk factors to include in your business plan. Some examples of common risk factors:
- Legislative and regulatory risk – is the demand for your product or service affected by government legislation and/or agency regulation?
- Little or no operating history risk
- Key man risk – does your business go away when key persons go away? A mitigant might be a cross-trained management team.
- Competition risk – does your business compete in a crowded space? Do you compete with large competitors with far greater resources?
- Low barrier to entry risk – how easy is it for a new competitor to enter your space and compete with you? A mitigant to this risk might be intellectual property (patents) and or contracts.
- Customer concentration risk – do you derive all or substantially all of your revenue from 1 source / customer?
- Demand risk – are you creating a new market? How do you measure demand? What empirical evidence do you have to prove market demand? A mitigant might be benchmarking precedents.
PlanIt Business (“PIB”) is a leading business plan consulting service, created to provide entrepreneurs, start ups and small – medium sized companies with high quality, customized and value-added business plans and a link to capital funding through its exclusive investor partner network, which consists of venture capital firms, crowd funding services, brokers, bankers and high net wealth accredited investors. In addition, PIB provides financial projection models, board presentations, Private Placement Memoranda (“PPMs”), Valuation and transaction support services including capital raising and mergers & acquisition. PIB also provides subscription services that include over 200 different market research reports, business planning and financial modeling video tutorials and VC and SBA monthly newsletters.
PIB guarantees that all of its business plans are customized from scratch instead of copied from templates or auto-generated by software programs. In addition, all business plans are written by an Ivy League MBA with start up experience as well as experience in corporate, investment banking or venture capital – – we do not use an “assembly line” approach nor do we delegate to junior resources. PlanIt Business is a subsidiary of ELK Partners LLC and is headquartered in Dallas, TX.