Risks

Cash Flow Statement

Balance Sheet

Income Statement

Funding Request and Return

Your competitors cut their prices

A key customer cancels a contract

The industry's growth rate drops

Design or manufacturing costs exceed your projections

Your sales projections are not achieved

An important ad campaign flounders

Important subcontractors fail to make deliveries

Your competitors up the ante by releasing a new, better product or service

Public opinion of your product or service changes

You can't find trained labor

Evaluate your risks honestly. Put yourself in a "what if" situation. What if my competition meets my Unique Selling Proposition...what sets my product apart? What if I can't find the right employees?

Instead of putting your risks in a separate section, you can incorporate them into the various parts of your plan. For instance, you could discuss possible long lead times for subcontracted parts in the "manufacturing process" section of the plan, or the impact of a lower than anticipated response rate to a direct mail campaign in the "sales tactics" section.

In many industries, small companies innovate and large companies copy and take the credit. This is always a risk you need to consider. Think of ways you can stay ahead of your competition and retain your Unique Selling Proposition.

To generate a complete list of risks, examine all of your assumptions about how your business will develop. The flipside of many of them may be risks.

Consider some commonly-made small business mistakes as potential risks. Some of the biggies include: paying employees too much; hiring friends rather than the most qualified candidates to fill positions; underestimating costs; underestimating the sales cycle; overlooking competition; trying to be all things to all customers.

As with all financial documents, have your cash flow statement prepared or at least reviewed by a reputable accountant.

Avoid an unrealistically quick ramp-up of sales. Most companies experience a gradual increase in sales, even on a monthly basis. A sudden unexplained spike will stand-out and not look like an honest appraisal of your business.

Include effects of seasonality and business cycles in all projections. For example, if you are in the gift business, you would need to show the Christmas buying season or the Wedding season. If you're a consultant, you might experience higher sales late in the year when companies are trying to use up their annual funds, or at the beginning of the year after budgets are approved.

Do not fall in to the common trap of underestimating cash flow needs. This can lead to undercapitalization, which means your funds will prove inadequate for meeting your obligations.

Do not include "projections" that include dates and events already in the past. Old projections are more tolerable if your projections were right than wrong.

Avoid large income or expense categories that are lumped together without backup information about the components.

As with all financial documents, have your balance sheet prepared or at least reviewed by a reputable accountant.

Do not include "projections" that include dates and events already in the past. Old projections are more tolerable if your projections were right than wrong.

Avoid large income or expense categories that are lumped together without backup information about the components.

As with all financial documents, have your income statement prepared or at least reviewed by a reputable accountant.

Avoid insufficiently documented assumptions about your company's growth. In other words, if you say you expect your firm to grow by 30% in the first year and 50% in the second, you need to document why those numbers are attainable. It can be because similar companies have had this growth path; because the industry is growing at this rate (site the source for this data); or because of projections from a specific market researcher, industry association, or other source.

Include effects of seasonality and business cycles in all projections.For example, if you are in the gift business, you would need to show the Christmas buying season or the Wedding season. If you're a consultant, you might experience higher sales late in the year when companies are trying to use up their annual funds, or at the beginning of the year after budgets are approved.

Do not include "projections" that include dates and events already in the past. Old projections are more tolerable if your projections were more right than wrong.

Avoid large income or expense categories that are lumped together without backup information about the components.

minimum amount to participate;

how this capital and future investment will dilute current and subsequent ownership;

payback period and return on investment;

why the investment is sound;

collateral being offered;

current investors;

access to additional funding sources;

what percent, if any, an investor could recoup via tax benefits, liquidation or other means if the business goes sour

Include future financing needs. In other words, don't just look at what you need today, but give an idea of what financing you will need in the future to take your company to the next step toward success.

Be sure to document how investors will make money and what return they will get. This can't be stressed enough. If you're asking for money, you can't just say something like "you'll make lots of money from this." You need to show how much money they should expect to make from their investment.

Avoid unrealistic company valuation.

Don't be penny-wise and pound-foolish by asking for less money than you think you'll need because you think it will help you get the money. It may be better to ask for more than to have to go back to your financial resources when you've run out of cash.