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As mentioned in the development plan section, many factors can delay and add to the expense of
developing your product. The business plan should identify the factors that may hinder development.
For instance, as the popularity of mobile device applications grows, there will be an increased demand
for software engineers who are skilled in mobile application development. That leads to the risk of not
being able to hire and retain 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 forecast (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
I 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 investors and is successful, that
isn‟t a near-term risk, but most ventures will need multiple rounds of financing. If the firm fails to
make progress (or meet key milestones), it may not be able to secure additional rounds of financing on
favorable terms. A contingency to this risk is to identify alternative sources that are viable or strategies
to slow the burn rate. 11
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 and helps you
anticipate corrective actions that you may need to take.
Offering
Based upon the entrepreneur‟s vision and estimates of the capital required to achieve it, the
entrepreneur can develop a “sources and uses of funds” schedule (see Exhibit 14.13). The sources
section details how much capital the entrepreneur needs and the types of financing such as equity
investment and debt infusions. The uses section details how the money will be spent. Typically, the
entrepreneur should secure enough financing to last 12 to 18 months. An entrepreneur who takes more
capital than needed has to give up more equity. If the entrepreneur takes less capital than needed, it
may mean that the entrepreneur runs out of cash before reaching milestones that equate to higher
valuations.