As you plan to transition from employee to entrepreneur, uncertainties are bound to happen. There are three types of uncertainties that I usually focus on. I group them by what they potentially impact:
Timeline
Product
Budget
We’ve talked about timeline and product risks already. I’ve left budget for the last of the series because the events that affect timeline and product probably affect budget. There are usually additional costs if it takes more time to start up or if we don’t create the “right” product the first time.
IDENTIFY
It’s easier to identify, analyze and respond to timeline and product risks first and then use the following to start working on risks to budget.
I also look at 1) any assumptions I may have made about costs 2) any lessons learned from others who have done what I’m trying to do.
So let’s put on your CFO hat.
• Have you seen unexpected costs for businesses similar to the one you are starting?
• What assumptions or guesses have you made about costs? Are there expenses that vary over time?
• Are there limited suppliers for your key materials or products?
• Do you have total startup costs saved already or are you adding to it on a regular basis, i.e. bi-weekly or monthly?
• If your budget includes money from new product sales, what assumptions have you made about pricing and selling your products?
ANALYZE
Once you have listed all the risks you can think of that may impact your budget, take the time to determine possible impact and probability. The impact and probability will be used for step 3. I explained how that’s done here.
RESPOND
This is the same approach we used for timeline and product risks, so it should be familiar to you. And as mentioned before, although you will come up with a response for each risk, you probably won’t come up with a plan of action for each one. There are 4 ways to respond: mitigate, accept, avoid, or transfer.
And in the early stages of transitioning, you may not come up with a plan of action right away for how to mitigate or how to avoid. You are still probably determining if your business idea is viable.
Something else to consider when thinking of risks to your business, is that there are things that will come up that you wouldn’t think of explicitly, so you can’t identify them. Since you don’t know what you don’t know, it’s best to have some buffer in your plan. That buffer would be extra money in the case of budget risks, extra time for timeline risks. And additional money and time to possibly create alternative products for product risks.
I have created a risk register that is simple and easy to use. It’s good to keep all your risk information in one place especially since they are often interrelated and one event can create multiple risks. Best practice is to review and adjust on a regular basis. Please let me know if you have specific questions on this 3 step approach.
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