What to Include
In this section, you’ll identify and assess the potential risks that may impact the success of your business. This demonstrates to investors that you are aware of challenges and have thought through plans for mitigating them. Address both internal and external factors.
Core Elements:
- Market Risk: Risks associated with market trends, competition, and changes in customer demand.
- Operational Risk: Risks related to the internal workings of the business, such as supply chain issues, production, or hiring.
- Financial Risk: Risks related to cash flow, access to capital, or unexpected financial shocks.
- Regulatory/Legal Risk: Risks from changing regulations or legal challenges.
- Technological Risk: Risks related to product development, software, hardware, or technology dependencies.
- Reputation Risk: Potential harm to brand or public perception, and how you plan to address negative publicity or crises.
Where to Source the Information
- Market Research: Industry reports, competitor analysis, and customer surveys.
- Historical Data: Any past experiences the company or its founders have faced in dealing with risk.
- Advisors/Consultants: Insights from legal, financial, or operational experts.
- SWOT Analysis: Leverage the strengths, weaknesses, opportunities, and threats framework to identify key risks.
How to Analyze
- Probability & Impact: Assess the likelihood of each risk occurring and its potential impact on the business.
- Mitigation Strategies: Detail how the company will address or reduce the impact of these risks.
- Contingency Plans: Discuss how the company plans to handle risks that materialize, such as having an emergency fund or adjusting business strategy.
- Prioritize Risks: Rank the risks from most to least critical to focus on the most pressing issues first.
Format and Structure
- Risk Categories: Clearly identify and break down each risk category.
- Impact Assessment: Rate the potential impact on a scale (e.g., Low, Medium, High).
- Mitigation Plans: For each risk, describe what actions the company will take to minimize or eliminate it.
- Contingency Plans: Provide details on backup plans or responses should risks materialize.
This section gives investors a clear picture of the potential risks the business faces and how you plan to navigate them.