HOW TO WRITE BUSINESS RISK ANALYSIS FOR YOUR BUSINESS
One major mistake that business owners often make is overlooking business risk analysis when writing their business plans, which is not supposed to be. It’s either that they believe there are no risks to analyze or they intentionally leave it out? Either way, you must not be like them. You must articulate your business risk in your business plan because it is one of the best ways to have investors or funding partners consider your business for funding. The risk analysis in your business plan is to show that you’ve gone through relevant risks and planned for them and your plan can be achieved when things go wrong. Pick those risks that are relevant to your business, properly analyze them, and highlight them in two or three paragraphs in the risks section of your business plan.
In building your business plan, you need to carry out some work and risks. Starting or running a business takes hard work and dedication to succeed. However, risks are more dangerous than others. Every business owner must keep in mind that risks are threats to their business and there should be appropriate management of those risks in order to reduce their effect on their business. Thus, in the management of risks, there are steps you need to take. Below are the various risks you may need to analyze for your business.
- Financial Risk: Financial risk is related to every form of finance made in the business that may result in the outflow of resources. When a business’s outflow of money is higher than its inflow, financial risks tend to increase. This risk also involves money owed to outsiders, credit given to customers, fluctuation of interest; they serve as a financial threat to your business. However, making the necessary adjustments to your business plan will help you avoid outflow or unexpected loss. You need to keep your debt to the minimum and start a system that will help you maintain a low debt as soon as possible.
In addition, you should not be expecting all your income from one client or two clients, because if they stop using your services, your financial risk might rise. Start making the move of marketing your products/services to diversify your customers or clients, so, if you eventually lose one or two clients, it won’t have a significant effect on your business.
- Reputation Risk: reputation risk affects your business when there is product or service failure, or when customers are not happy with your products/services. This can go a long way in spoiling your business reputation, thereby lowering your profit or revenue. To prepare for this risk, you should come up with a strategy of reputation management to continually monitor what people are saying about your products/ services. You should be ready to respond to questions; ensure you keep quality or maintain your standard.
- Operational Risk: operational risks are the internal and external factors that could mount pressure on your business. This type of risk could be a disaster or fire that destroys things in your business. That is unexpected happenings that cause you to lose business continuity. More so, operational risks could be people-oriented; when employees make costly mistakes that cost time and money. It should be noted that whether it is a people or process failure, the risk can impact your business negatively. However, tackle these operational risks through business in terms of time, time and reputation. You need to address each operational risk through training and a business continuity plan.
- Economic Risk: Due to fluctuation in the economy, some changes are good for the economy, which can increase consumers’ confidence by increasing what they purchase while negative occurrences will reduce sales. It’s very important for business owners to watch the pattern of the change in the economy, in order to adequately plan.
WHY INVESTORS SHOULD BE KEPT ABREAST OF YOUR BUSINESS RISKS
Whether a lender or an investor, their major concern will be trying to balance risks embedded in your business, and the likelihood of a reward, which is to increase business value. A business owner should not only talk about the opportunities in his business but also analyze the risk inherent in the business. The obvious truth is investors understand that risks exist in every business. There are risks that occur from your supplier side, customer’s side, and your team in general. It is important to understand the risks that are associated with events. Not only that, you need to also understand the size and nature of the risk, for proper analysis.
TWO MAJOR REASONS WHY INVESTORS WANT TO UNDERSTAND YOUR BUSINESS RISKS
- Relevance of the Risks: investors always want to know how important are those risks, and are they worth funding? If your business risks are fundamental for investors to consider. Also, you must state your business risks clearly, how those risks tend to affect your business, and ways of limiting those risks, so as to have less impact on your profit level. You must try to deal with those risks factors for your business to be at the right stage of receiving external funding, whether from suppliers or investors.
- A Better fit package: another reason is for investors to be able to structure a good package of funds for their business, despite the risks. In your business plan, you must state clearly those risks your business is to and those likely future risks. Through this, investors would design a package on how to go about funding, so also the suppliers or creditors.
HOW TO WRITE BUSINESS RISKS IN YOUR BUSINESS PLAN
It is pertinent for every business owner to highlight risks factors that could cause losses, in case they happen. These factors should be boldly stated, as they can be used for either internal need of the business or for external uses (investors and creditors). These factors are also called threat factors, because they threaten the progress and survival of the business. Below are some of the reasons why you should analyze possible risks in your business plan.
It aids planning for the unforeseen
Stating your business risks will help you see things that could go wrong in your business even before they occur. Writing business risk for your business plan will make you aware of likely threats to your business growth. In this regard, it will help to mitigate the risks so as to lessen those financial damages that may likely occur in your business. This help you make provision for what is called “what if”. This will help you as a business owner to make adjustments to your marketing and strategic plans.
It helps you to understand and know your business environment
A business owner should endeavor to study his environment, put up a system that will enable you to study and understand your environment, particularly, your competitors. While monitoring your competitors, you would have knowledge on relevant decisions of your competitors that set threats. Risks factors should not only be prepared annually or more, however, should be prepared at close intervals, because new threats emerge throughout the year. So, to adequately reduce the risks level, your business environment should be thoroughly accessed.
It helps you to move on with assurance
Since the team has several strategies in place, the business owner will move further with all confidence. This will be ready for upcoming risks from business environment. Using their pre-determined strategy, the management can access the risks and threats that may likely become actual threats. It is very possible to worry about those external threats, but the proper risk analysis will help to reduce those worries, so they would not have much effect on your revenue and profit level.
It’s important to potential funders
Investors, who are contemplating on whether to put money into your business, need to access the risks of your business. This will make investors to know the proportion of money invested that could be lost. In fact, sophisticated investors ensure that they carry out their risk analysis before putting money into the business.
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