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What is risk management?

What's All This Risk Stuff? And Do I NEED It?

Business planning needs include risk and risk management in: cost management, scheduling, equity and debt.

That's all well and good, but how do you KNOW what your risks are? Well the short of it is, you don't KNOW what all the possible risks are. You plan for production failure, and sure enough you will have a transportation of goods issue.

To understand how to overcome risks, know your resources. Since all risk can not be planned for, it is important to include who to contact in certain project risks. Know your investors, bank lenders, SBA (small business administration) contacts, local businesses, and professional associations. Keeping these numbers at hand can help you in the event of a calamity.

Good, verifiable resources for risk management include:

Books by Harold Kerzner (most of which are on Amazon.com)
The Risk Management Association http://www.rmahq.org/RMA/
The Project Management Institute http://www.pmi.org/info/default.asp

   

Regulations And The Business Plan

Organizations today are subject to an increasing number of regulations that entail compliance. From Sarbanes-Oxley to the Health Insurance Portability Accountability Act (HIPAA), companies are required to adhere to a multitude of standards and regulations. In addition to various national and international regulations, there are many more rules that stem either from regional or local governments or industry oversight committees. The end result is that new and tenured businesses must juggle multiple sets of regulations on local and international levels while maintaining industry-specific regulations. This means that your business proposal must show that the business has done the research, knows the regulations, and how to follow them. Failure to follow regulations can result in fines. A simple one or two paragraph addition to your business plan that examplifies how you will meet regulatory standards can go a long way in establishing that your business is greater than a fly-by-night operation. Show that you have done your research.

   

Should a Business Plan Be Printed in Color

Depending on the business and the industry in which it operates, a business may or may not benefit from the use of color. As an example, if the business is involved in a basic industry, say electrical contracting, wholesaler of cardboard boxes, color would not hurt, but doesn't necessarily help the presentation as the financial and market projections are the critical factors. However, if the business plan is prepared for a more media-related, retail product or hospitality business, it is not only beneficial, but subconsiously "expected" by the reader that color will be used.

   

Should a Business Plan Use Graphs

For all but the most simple businesses, a business plan should include graphs. Whether for the use of the business owner alone, or for the examination of lenders and/or investors, graphs provide an important aid. As the cliche states, "One picture is worth a thousand words." This is true for business plans. While the financial projections and marketing data (demographics, industry trends, etc.) will be stated in text and numbers, a reader can quickly see the "picture" and trends by viewing the graphic representations of the text and numerics. This is particularly important if the plan is targeted to lenders or investors, as they have limited time to examine requests for funds. Graphs provide an quick snapshot of the business and, if effective, may lead the reader to delve into the text and numbers with more interest.

   

Shoud a Business Plan be Created by a Consultant, Accountant or Other Professional

Yes and no. In most cases, a business plan should be professionally created for all but the smallest and most basic businesses if the original primary purpose is to convince lenders or investors to make funds available. But - the raw data should be created by the business owner only. There are 2 reasons for this:

1) The business owner should know his/her business better than any professional in the business plan arena. It is their business and, if they are unsure of some of its elements, they will be experts after they expend the sometimes heart-wrenching effort it takes to create the raw data for a business plan.

2) By spending the time necessary to assemble, research and compile the information needed, the business owner develops a much better understanding of his/her business, a new depth of knowledge the owner will most likely need in the future as roadblocks and problems appear.

After the raw data is assembled, a professional should be hired to prepare the final product. They deal with lenders and investors as a regular part of their business and, if experienced, know what lenders and/or investors want to see.

   

Do I Need a Slick and Thick Business Plan to Impress Lenders or Investors

Contrary to what many think, the level of slick or the number of pages has little to do with the probability of a lender or investor providing the funds needed. Both lenders and experienced investors had seen hundreds, if not thousands, of business plans. Most will know right away whether the plan has manageable, realistic substance or is an elaborate work of fiction. Depending on the industry and quality of content, business plans of as little as 5-7 pages can be as effective, sometimes more useful than 30-40 page plans filled with useless, unrelated information. There are only 2 questions that need be answered for an entrepreneur to receive the funds needed:

1) Does the business have a good probability of succeeding?

2a) (Lender) Will the business generate sufficient cash flow to repay the loan?

2b) (Investor) Will the business generate sufficient profit to provide a decent return on investment?

That's it. There really is nothing else of major importance to anyone deciding to make funds available.

   
Why should I take the time to write a business plan?

Why Do I Need a Business Plan

Business plans are crucial to long-term business success. In fact, one of the biggest reasons that a business will fail is a lack of planning. Well-crafted business plans provide a road map for navigating customer bases, financing and even helping guide day-to-day operations. Some of the primary reasons for a business plan include:

Financing - Nearly all small businesses will need some type of financing. Whether you are seeking financing through your local bank, a venture capital firm or private sources, you will need to have a plan in place. A well-crafted business plan will show potential investors all sources of revenue and a repayment plan.

Management decisions - Business owners who are committed to long-term success can use their business plan to help them make solid decisions. Having this type of a blueprint handy can mean smarter decisions made with full knowledge of the impact they will have on a business.

Marketing matters - Since a well thought out business plan also contains a marketing plan, it provides a vision for the business managers to target their marketing. The upside of this is it allows businesses to refocus their marketing if they get off track.

Goals and objectives - When businesses are undergoing changes, it is important to keep the overall focus and goals of the company in mind. Business plans can help the company principals keep their goals and objectives in mind at all times.

A well-thought out business plan is a must for businesses of all size. Whether you are running a partnership, a sole proprietorship or you are purchasing an existing business, you really do need to have a business plan. Business plans are living, breathing documents and should be reviewed from time to time as well as updated as things change. As a company grows, there may be a need for additional capital and your business plan may become even more crucial.

   
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