Business Basics

The critical risks section of your business plan should demonstrate that you understand the potential problems that could occur with your business and that you have contingency plans to deal with these risks. Realistically dealing with risks demonstrates that you understand the environment in which your business functions and that you have sufficiently planned for challenges.

Consider the following:

Competitors:
In what ways might your competition respond or try to block your efforts?
How will you effectively respond?

Management Issues:
Is the depth of your management team sufficient?
If not, where and how will you attract the management players needed?
What policies are in place to assure continuity of leadership?
What are your plans for responding to the loss of important personnel?
Have you considered and negotiated non-compete agreements with key management?

Legal Factors:
What patent, copyright, trademark, and other protection procedures are important for your company?
How do you plan to protect these, and what steps have been taken?
Which licensing requirements must be maintained?
What regulations must you be aware of and keep current with?

Staffing Concerns:
What personnel needs will you have over time?
How will you meet those needs in terms of capital requirements, training, benefits, hiring, etc?
Will competitive forces make retaining employees difficult?
How do you plan to compensate workers to reach maximum productivity?

Other Areas of Vulnerability:

>> Obsolescence factors
>> Cheaper products expected from competitors in the future
>> Cyclical trends in your market
>> Seasonality of your products or services
>> General economic factors

It's important to present both the positive and negative aspects of your business if you are serious about raising capital. Experienced entrepreneurs and managers clearly understand the risks associated with their business and industry, and they address them head on - often the reason for their success. The critical risk section of your plan is your chance to demonstrate that you have the ability to see the big picture and have the ability to get through tough business challenges.

Common Mistakes to Avoid

The following are the some of the most common mistakes found in the critical risk Section:

>> Failing to identify and quantify market barriers.
>> Failing to present uncontrollable business factors and contingency plans.
>> Failing to acknowledge management weaknesses.
>> Failing to present an honest assessment of the possible downsides of your business.