What is a major example of critical risk in a business plan? Every business is prone to facing certain business risks, which might appear very critical in the real world. As a business person, you must be able to spend sufficient time in drafting your business plan so that it is capable of addressing the critical risks and assumptions that your business might face.
You should be able to envision and determine, in your business plan, critical risks in a restaurant business plan that might pose a threat to the overall success of your business. When you do not pay enough attention to these risks, it could cause your readers – most important of which are potential investors and bankers – to negatively evaluate your business plan.
Below are some critical business risks and contingencies in a business plan that you must ensure to properly handle before they pose a threat to the success of your business.
• Risk of Overestimated Figures
The number one critical business risk that might land your business into problem by getting too much negative attention has to do with figures that have been overestimated. We are talking about high sales profit that seem too optimistic; salaries that appear to be too high or outrageous for a business of its age; and profitability. These three, if you overestimate the figures, will inadvertently pose as a serious business risk.
For salaries, it will be wise for you to go for the minimum as a start-up business, together with any additional incomes that come in the form of profits.
For sales and profits, it will be wise of you to always give figures that appear to be more likely, not figures that seem to match your optimism. Your business’ profitability largely depends on your ability to meet sales projections, and your ability to be able to operate in the confines of your costs.
• Risk of Indecisive Conversion Rates
Conversion rate (also hit rate) has to do with the percentage of people, out of the total number of people you approached, that purchased or patronized your product or services. Conversion rate could be best tested through test marketing or pre-selling.
When you test market, it simply means you offer the sales of your product within a particular limited area, for a particular period of time. Usually, you would offer incentives to buyers to encourage them help you outline your actual target customers for your business.
When you pre-sell, you are making introduction of your products or services to prospective customers, and even accepting orders for deliveries.
Your goal is to accurately know the conversion rate such that a reader may be able to take your projected market size, apply the conversion rate, and be able to deduce what the total sales estimate might be.
• Risk of Ignored Competition
Here is another critical business risk that many entrepreneurs fail to curtail. As an entrepreneur, you are the master and captain of your game. You are to take charge and seize your market. How do you do that? You are to know every competitor in the industry of your business. Yes, it is an obligation you can never overlook.
Many entrepreneurs feel they know their competitors very well, when in actually reality, they have no real clue as to who their major competitors are. You must ensure you have adequate knowledge of your immediate competitors, as well as substitutes and potential or latent competitors.
If you want to prove your long-term vision for your business, you must always keep abreast with the latest development regarding your competitors. You should even envision businesses that, in later years, might stand as competitors.
• Financial Risk
Most businesses today fold up as a result of financial difficulties. Lack of adequate financial resources is a very critical business risk that might make a business to close. In most cases, the business runs out of enough money; many customers are taking too long to pay up; unforeseen expenses and too much miscellaneous; accidents and costly financial mistakes could pose a very critical business risk to the business, and even lead to the eventual folding up if the business does not have enough money saved for rainy days to handle such problems.
In your business plan, you should demonstrate that you have adequate financial strength to operate your business until break-even and even after that. Provide the amount of needed investments and loans you will obtain to start and even run the business successfully – even if you are sure your sales volume will generate as much needed money to run the business.
• Risk of Inadequate Payback
When drafting your business plan, it is pertinent to always think about what the readers of your business plan will be expecting. For most people, it is how you intend to pay back the loan or investment you obtained, or the line of credit you hope to obtain from external sources such as banks.
For bankers, they would analyze the business plan critically to understand how exactly you have made plans to settle up the loans or line of credit you want to obtain from the bank. Your cash flows and your collateral issues are highly significant.
In the case of investors, the growth rates and profit margins of the business are highly critical because these are the factors that will actually determine how much they would earn.
For very vital employees, analyzing the business plan helps them have a good grasp of the business’ operation; this in turn would help them envision their future with the business.
• Strategic Risk
Another critical business risk factor to your business plan is the strategic risk. Sometimes, your best well-laid business plan might very quickly, actually look so obsolete.
The strategic risk is the business risk that your business strategy might actually become too rigid and no longer efficient in shooting your business to its desired level; your business then starts struggling in order to achieve its business goals.
This business risk could be as a result of a very powerful new competitor in the industry; technological advancement; a shift in the demand of customers; or even a rise in the cost of raw materials or other market changes.
You should take out time to write your business plan such that whenever you face a strategic risk, you should be able to easily tweak your business strategy and adapt, and be able to come up with a viable solution.