Page 139 - Business Plans that Work A Guide for Small Business

130 • Business Plans that Work

during the extended high-tech boom of the late nineties, there was an
acute shortage of skilled software engineers. That led to the risk of hiring
and retaining the most qualified professionals. One way to counter the
problem might be to outsource some development to the underemployed
engineers in India. Compensation, equity participation, flexible hours,
and other benefits that the firm could offer might also minimize the risk.

Operating Expenses

Operating expenses have a way of growing beyond expectations. Sales
and administration, marketing, and interest expenses are some of the
areas that the entrepreneur needs to monitor and manage. The business
plan should highlight how these expenses were forecasted (comparable
companies and detailed analysis), but also talk about contingencies such
as slowing the hiring of support personnel, especially if development or
other key tasks take longer than expected.

Availability and Timing of Financing

We can’t stress enough how important cash flow is to the survival and
flourishing of a new venture. One major risk that most new ventures
face is that they will have difficulty obtaining needed financing, both
equity and debt. If the current business plan is meant to attract inves-
tors and is successful, that isn’t a near-term risk, but most ventures will
need follow-on financing. If the firm fails to make progress (or meet key
milestones), it may not be able to secure additional financing on favor-
able terms. A contingency to this risk is to identify alternative sources
1
that are viable or strategies to slow the “burn rate.” Less well known is
beating projections exponentially and not being able to finance growth.
One of the authors is currently working with a new venture that forged a
new channel of distribution that will increase revenue 10-fold per month
in the first year. They have only 30 days to get the financing to ramp up
inventory by millions of dollars!
There are a number of other risks that might apply to your business.
Acknowledge them and discuss how you can overcome them. Doing so
generates confidence in your investors. Let’s take a look at the Lazybones
critical risk section.

1 Burn rate is how much more cash the company is expending each month than earning
in revenue.