Article

Planning for the Unknown: Identifying Risk in Your Business Plan

When I review start-up business plans, I often see a tendency to minimize risk to the point where the business risks seem almost non-existent. I understand the desire to present a business scenario in a positive light, but every business comes with risks. In fact, a business plan that does not discuss risk may in fact make the company more vulnerable, especially if the proprietor is unaware of market or industry shifts that can affect the viability of the company overall.

So how do you determine which business risks to discuss in your business plan?

Certainly some risks carry a higher probability of occurrence than others. Natural disasters, for example, can’t be predicted or mitigated – and, they are the same for virtually every business. So in most cases it’s safe to leave these kinds of risks out of the business plan.

Instead, think of risks that are specific to your industry. If you’re in the restaurant sector, supplier risk is significant; you can’t lose your source of ingredients, or you can’t make your food. Same goes for permits & licenses; sometimes, municipalities have a lot of red tape, and permit approval waits can delay a business launch for weeks or even months.

Many brick-and-mortar businesses also carry risk related to their lease. For that reason, it’s important to read a lease agreement carefully to ensure that the owner can’t kick you out on a whim or decide to knock the building down without giving you ample notice. Be wary of very short-term lease agreements too; if your landlord can change your lease terms after just one year, you run the risk of not being able to afford your space any longer.

Technology shifts can also undermine a business, and these can be hard to predict. Many large corporations have been unable to recover from the effect that frequent technology advancements have had on their profitability, even when people internal to the organization recognized the threat. If your business produces or relies on a specific technology, it’s important to consider how changes could affect your company.

Please don’t let a risk analysis stop you from becoming an entrepreneur; remember, you’re much better off identifying these potential threats at the beginning, than trying to fight them later on. A strong risk analysis lets a lender or investor know you’ve done your homework, you’re realistic about your business’s potential and you know how to handle tough business situations.

When in doubt, get someone from outside your business to review your plan and help you identify the risks. You can use this knowledge to help you create a successful business!