Risk Analysis


In reality, the business plan is a risk assessment tool. The risk is that you don’t know what you are doing! As you explain the plan you are also evaluating the underlying risk associated with the expected reward (revenue or profit). The reader is evaluating how well you did the analysis. You may want to attribute much of the risk in any venture is the “unknowns” or the things that we can’t predict or control. That isn’t true. Every venture contains a certain amount of inherent risk, but much of that risk can be controlled, anticipated, or mitigated before it damages the plan. The person reading your business plan wants to know that you have considered all the possible things that can go wrong and have developed contingencies to alleviate or minimize the risk.


Keep in perspective that good entrepreneurs are not gamblers. Gamblers have no control over the outcome of the bet. Entrepreneurs on the other hand are calculated risk takers. They understand how to control many or most of the risks and have contingencies or insurance for the rest. Even if small miss-steps happen along the way, the prepared entrepreneur has alternatives or backup plans that redirect the operation back onto a profitable course. The prepared entrepreneur knows going in that the customers will purchase the good or services offered. It’s not a wild guess – they have the background, experience and marketing knowledge to accurately predict sales. Plus, they have accurately calculated the costs associated with the sale and know their profit margin. Preparation is the key to success.


Someone once said that “if money is the only problem – then money isn’t the problem”. Every business plan is built on the assumption that it will make money. Investment money flows to where it can get the best reward for the inherent risk. Even though our economy is struggling money is still available to fund profitable ventures. Your venture should be the best place for you; an investor; or a bank to put their money. If the funding isn’t available then the risk / reward tradeoff is too high – meaning that the reader feels the venture has too much risk for the potential payout. Remember that the main reason for doing a business plan is to carefully understand and neutralize each risk component. You should be as concerned risking your own money on the venture as a bank or an investor. You work hard for your money and you shouldn’t throw it nilly-willy at any half-baked enterprise. The more you research and understand the venture the better chance you have controlling the uncertainties of the plan.