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Risks and Contingencies

This document outlines typical risks faced by companies, such as lack of operating history and inexperienced owners, as well as potential financial pitfalls like underestimated initial capital needs and overstated revenues. It emphasizes the importance of addressing each risk with a corresponding contingency plan to minimize adverse impacts. The guide advocates for a structured approach, grouping risks with their contingencies, and clearly articulating responses to each identified risk in a consistent format over 2-4 pages. Understanding and planning for these risks is crucial for a sustainable business model.

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Risks and Contingencies

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  1. Risks and Contingencies Dr. Stan Abraham MHR 423 Spring 2005

  2. Some Typical Risks • Company has no operating history • Owners have no experience running a company • A key member of the founding team leaves • Initial capital needs may be underestimated • Needed financing may not be forthcoming • Revenues may be overstated • Competitive retaliation may be underestimated • An optimal location may be impossible to obtain • The economy’s turnaround may be delayed

  3. Contingencies • For each risk, state how the company would deal with it if it were to happen, or how it would limit the adverse impact of the risk • A business plan gets low marks for not acknowledging that it faces certain risks • It also gets low marks for not having thought through how it would deal with those risks • Don’t “invent” risks – include only those that are real

  4. Typical Format • Group the risk and contingency in pairs • For each risk (usually a sentence), say what the company would do if it happened (usually a paragraph) • Choose and stick to a consistent format • Typically takes up 2-4 pages double-spaced

  5. Any Questions?

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