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Uncertainties are especially high for companies selling internally consumed products such as food, beverages and pharmaceuticals.Any business that involves customers physically visiting its place of business is vulnerable to “slip and fall” or other types of litigation.
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.
For convenience, these threats can be classified into three broad categories.
These are “general business risks” that are faced by all companies, “industry-specific risks” that are faced by companies within the industry and “company-specific risks” faced by the company itself.
Within this framework, specific potential risks within each category can be identified and addressed.
The major challenges are those that may adversely affect the company’s financial condition, forecast financial results and liquidity.The company should include the cost of liability insurance in the financial forecasts.In the case of start-ups, there are uncertainties associated with raising start-up capital and maintaining sufficient funding.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.In the case of companies that offer proprietary products, there are uncertainties associated with ownership of intellectual property.It is important to have trademarked brand name and patent protection to prevent replication of company products or services, which could have an adverse effect on the company and affect the outcome of intellectual property rights disputes.In the marketing plan, the company’s action plans for overcoming the competition are outlined.Some types of businesses are more subject to litigation risks than others.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.