How To Do Risk Analysis In Your Business Plan
When creating a professional business plan, it is important to ensure that it includes the risks and challenges. While it is not possible to identify and address every risk, highlighting and discussing the most important ones is important. This will help the management to come up with ways to mitigate the potential impact of the risks on the business operations. Apart from identifying and discussing the risks and challenges, the plan should also involve coming up with strategies to deal with them.
A good business plan will enhance credibility, while also increasing the confidence that potential investors have in the business and its financial projections. It is important to be honest when discussing the potential business risks. Trying to gloss over the issues can lead to lack of confidence in the management. Risk analysis is especially important for small businesses and startups that are trying to secure capital for expansion or for ongoing operations.
Identifying business risks
The process of enterprise risk analysis begins with identifying the external and internal threats that can inhibit achieving the planned results. The threats can be grouped into three categories, namely “general business risks” that all companies face, “industry-specific risks” that affect businesses within specific industries and “company-specific risks” that the particular company faces. You can identify and address the potential risks in each category. The major risks are those which have an adverse effect on the company’s liquidity, financial condition and the forecast financial results.
General business risks
Most businesses share the general business risks, but their effects or significance often varies by company. New businesses or startups must gain the required experience in managing marketing, operational and other issues that will arise. Some potential threats include problems that can develop during marketing, quality control, promotion, distribution and other areas. The start-ups and companies in the early stages need to attract and build relationships with customers from their competitors. Established companies will have different similar problems but some are more vulnerable than others.
Industry specific challenges
There are challenges and risks that are industry-specific and it is important for businesses to identify what they are. One major challenge is the issue of industry competition. While this may be a common challenge, the business plan should address what the business can do to compete effectively. It is important to discuss marketing strategies while also discussing major competitors and identifying their strengths and weaknesses. The company’s action plans to deal with the competition are given.
Company specific risks
There are risks and uncertainties associated with different companies including recruitment issues. The risks are different depending on the stage the company is in. Startups will often have issues when it comes to obtaining start-up or working capital, which effectively affects operations. There are also risks that are associated with the business fixed cost structure and they can vary depending on the company. Some companies have high fixed costs due to the large investments in facilities and equipment.
As you can see, it is very important to ensure that financial and business risks are identified and discussed fully in the business plan. If you lack experience in this area, it might be worth to consider getting professional help from business financial advisors to support the task of conducting a risk analysis.