Risk Analysis in Biz Plan, #4

from iPlanner.net 6/13 enhanced by Peter/CXO Wiz4biz 9/14

Company-Specific Risks continued

1. Manufacturing. In some businesses – such as manufacturing – there are high fixed costs because of the large investments in equipment & facilities. Companies with high fixed costs achieve profitability only after the volume of business builds to a point that the fixed costs are covered. Thus, any problems in achieving & maintaining sales levels beyond the break-even revenue level would have an adverse impact on operating results. The Risks & Threats section of your Business Plan should refer to the marketing section, where strategies to achieve required volumes are discussed. In a service business, this challenge is not as significant, as more costs are variable and can be more easily managed as business volume changes.
2. Personnel. All companies have uncertainties associated with recruiting, retaining & managing human resources[HR]. In the Management & HR sections of your Business Plan, the company should discuss plans to recruit additional key employees & senior management that are critical to achieving its forecast and operational goals. The Risk Management section should mention that the company may or may not be successful in obtaining experienced professionals in web site development, operations & other areas, but reference sections of the business plan where strategies are outlined to address this issue.
3. Startups. In the case of start-up companies, success of the enterprise will be dependent on the continuing services of only one or two key managers who provide executive leadership. If for any reason these managers were not to fulfill their current leadership roles, the ability of the Company to achieve its forecast results would be adversely affected.

Conclusion: It is important that business & financial Risks be identified & discussed in the enterprise’s Business Plan. The informed reader of a Biz Plan, especially one who may be asked to provide capital for the business, wants to be comfortable that the management has considered “potential” Risks and developed strategies to deal with them. In the process of developing the business plan, identification of potential Risks will not only result in a better plan, but also better prepare management to successfully manage the enterprise. Funders will have a less favorable view of a written Business Plan that does not include a risk analysis section, than one that demonstrates that management is aware of uncertainties and is prepared to take actions to address any risk or threat.
Comments: Anything you can add to Risk Analysis & Management?