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Risk analysis is particularly important for start-ups and small businesses, whose objective in writing a business plan is often to secure capital to start the business, to secure additional working capital for operations or to raise money for expansion.Since they often have more limited operating histories, entrepreneurs and small business managers have not yet demonstrated their ability to cope with business risks.
Small but established companies have already gained experience dealing with these problems, reducing this business risk.
The risk analysis section should mention these dangers and uncertainties, and the business plan sections relating to each risk category should have strategies to deal with them.
Even professionals who have no on-site business can be sued for alleged “errors and omissions” in their advice.
The litigation risk is discussed and measures to reduce it, including safety precautions and insurance coverage, can be described to indicate that the risk is known and has been addressed.
The business faces dangers associated with natural disasters.
These relate to changes of the weather and their consequences, such as time lost in production and distribution and resultant economic downturns that depress sales.A professional business plan should include a discussion of business risks and challenges.Although every possible risk will not be identified and addressed, the business plan should discuss the most important ones and indicate how management will mitigate their potential impact on business operations.Potential threats include unexpected problems that may develop in quality control, distribution, marketing and promotion and other areas.Start-ups and early stage companies must also build relationships with customers and attract customers from competitors.Identification and discussion of business risks and challenges, and having strategies in place to deal with them strengthens the plan, enhances management’s credibility and increases the confidence potential investors will have in the business plan and its financial projections.Being upfront and discussing potential business risks, rather than glossing over them, builds confidence in the company’s management.The risks and challenges section of the business- or project plan should discuss industry-specific risks. Although it is expected that competition will be mentioned as one of the risks, enterprise strategies for competing effectively should be outlined in the competition and marketing plan sections of the business plan.In the competition section, major competitors and their strengths and weaknesses are discussed, as well as the company’s strategic positioning.General enterprise business risks are shared by most businesses but their significance varies by company.In the case of start-ups or early stage companies, management must gain experience in managing operational, marketing and other problems that will arise.