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Risk Factors
Like so many other business plan sections, including competitive analysis, market share and market penetration, forecasts and strategic marketing plan, Risk Factors is a section of the business plan that typically falls short in the majority of draft business plans we receive from entrepreneurs. Depending on many factors, including the amount of capital needed to accomplish the goals contained in a business plan, and the type of investor(s) you expect for your plan, a Risk Factors section of a business plan would be of varied detail and length as summarized below:
* For smaller plans, where the principals expect to raise capital from a bank, the SBA or a limited number of investors, a half page to one page section on the key risk factors is sufficient.
* For business plans that intend to raise capital from a number of investors, typically five or more depending on various counsels’ opinions of security regulations, an Offering Memorandum (OM) or Private Placement Memorandum (PPM) will likely be required. To satisfy security regulations and to legally protect the interest of principals as thoroughly as possible, a much lengthier business plan will either include a Risk Factors section that is typically 10-20 pages or more, or these Risk Factors will be included in the OM or the PPM as an alternative.
* For plans of substance with substantial detail, perhaps a startup in new technology or website, even if principals only plan on approaching institutional investors, the Risk Factors section of the plan should be 2-3 or more pages in length. It is also advisable for plans of substance to include a SWOT analysis, which will include strengths and weaknesses that incorporate Risk Factors. While the SWOT analysis is helpful in a summary format, it does not preclude the need for a Risk Factors inclusion in your business plan.
Feel free to ask us for more information.
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