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Analyze Your Risks and Prosper

When I started my full-time business, I enrolled in a class with a group of other wanna-be entrepreneurs to learn how to develop a business plan.

One component of writing a business plan is risk analysis -- i.e. the identification of existing or potential threats to the success of your new business. You identify all possible events, happenings or occurrences that might stand between you and business success.

Then you develop a strategy to combat each one.

One classmate said that she was a believer in the power of positive thinking and that she would jinx her business by thinking about the negative. Another refused to identify threats because "I get depressed when I think about what could go wrong." A third person simply said that his business idea was perfect and that there were no "downsides" to consider.

All three businesses failed before they reached their first anniversary.

These three entrepreneurs are not alone. I am often asked to assist with business plan or proposal writing and I'm always surprised to see how many people are unwilling consider potential problems.

There are two excellent reasons why your planning should include a risk analysis.

1. No matter how great your idea may be, there's no such thing as a risk-free business. The risks are there whether you admit it or not. Successful entrepreneurs face these challenges in advance and devise a strategy for handling them if the time comes.

2. If you are hoping to raise money, get a business loan, or attract a sponsor, the money-people won't allow you to use their hard earned cash until they are satisfied that you have done your homework. To an investor, risk analyses is a sign of good planning, not an indication that your business idea is a poor one because there are potential threats.

Convinced of the value of risk analysis? Start by asking "what if." Here are some examples to get you started.

1. What if your direct competitors find a way to undersell you? What will you do to remain competitive?

2. What if your direct competitors become so numerous that no one can make much profit?

3. What if you indirect competitors seize the lion's share of the market? Indirect competitors are businesses providing a different service than you do but still competing for a share of your customer's dollars. For example, if you are selling books, indirect competitors are magazines, newspapers, content- rich web sites, electronic books, etc.

4. What if your suppliers raise their prices, go on strike, or go out of business?

5. What if your suppliers can't keep up with the orders you are receiving?

6. What if you experience theft, vandalism, fire, or damage caused by "Acts of God?"

7. What if you get caught in a "cash flow" crisis? This can happen if you tie up cash with equipment, inventory, etc., but sales are slow or customers are slow in paying.

8. What if your employees unionize?

9. What if delivery costs escalate?

10. What if import or export regulations change?

11. What if future trends affect your business? In my area, once-prevalent muffin shops are closing down and coffeehouses taking their place. The muffin trend is out, the coffee house trend is in.

12. How might changing technology impact your business? For instance, many small web designers are feeling the pinch as a consequence of software developments that make it easier for people to design their own sites. The web designers who find a strategy to remain competitive will survive.

13. What seasonal influences might you be facing?

14. What if your bank, your suppliers or your customers aren't prepared to handle Y2K issues?

Identify your problems in advance and you'll be a winner. Remember the old saying, "If you fail to plan, you plan to fail."

June Campbell is a professional writer whose work has appeared in a several international print publications. She also provides business writing services as well as offering online sales of "How-to Booklets and Templates for Business" from her Web site. (http://www.nightcats.com).

Tags: Wisdom and Life Skills


 

 

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