BEWARE OF WHAT YOU DON’T KNOW
A large part of what we do in preparing a business plan for a business angel or investor is to de-risk the matter. Investors invest to make money not lose money, therefore eliminating the risks in an investment are crucial. Obviously all investments in business ventures carry a degree of risk, however investors follow the risk vs reward philosophy which means the greater the risk the greater reward they will seek.
The most common source of risk in business plans presented to business angels and investors are in the great unknown. Known risks can be identified and mitigated, unknown risks are just out there and provide the greatest concern for investors. Why are they the greatest concern? Because the investor has identified a risk associated with the business venture that the entrepreneur has not. This starts alarm bells ringing and the investor starts questioning the entire matter. Does the business still stack up? Can I trust this person to manage the business? What other risks are there that aren’t identified?
So why do unknown risk occur in business plans? Well from our experience there are two main causes. The first is people do know the risk exists but choose to take the easy option and not address the issue in the hope that it will go unnoticed. The second, and most common, is that people don’t know what they don’t know. It’s hard to address a problem that you are unaware of. This is where our experience comes in.
So how do you address what you don’t know? This is difficult. After doing hundreds of business plans for investors you get to understand what some of these things could be, although there is still no magic formula. However generally these unknowns are normally found in three areas:
- Business related
- Industry related
- Regulatory related
To assist in identifying risks and areas of concern we have developed the B&M Plans Deal Attractiveness Analyser. This assesses the attractiveness of the offer on a number of measures of which risk identification is a major component. It is impossible and impractical to cover all possible risks as no one knows what tomorrow will bring, however the audit assists in identifying potential risks that may be present in the business and of concern to an investor.
Identifying and addressing one additional risk in the business plan may be thing that tips the scales in your favour.
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