Fatal flaws in your business plan
A business plan is the blueprint that guides aspiring entrepreneurs as they build their new business ventures. From 2008 to 2010, I taught a 20-week business plan writing course at an SBA-affiliated women’s business development organization. We met for three hours a week and the students wrote their plans week by week, guided by the lessons.
When evaluating a business concept, unrealistic expectations or faulty thinking could creep in and undermine planning. Enthusiasm for the idea can distort one’s ability to see potential obstacles. What follows are scenarios that entrepreneurs-in-training should consider.
While it is sometimes true that using yourself as the ideal customer is a smart idea, since you understand the value and availability of that product or service, you could misinterpret the size of the market and the traction that can be achieved beyond a select group of people. true believers.
Confirm the need for your products or services when you research and verify the number of potential customers who have the money and the reason for buying from you.
Also, make sure you understand the buying process. Who gives the green light to the sale? What is the ideal price range? Lastly, where do potential customers get these products or services now?
Access to customers is everything and some industries or target customers seem impenetrable. You can identify the right customers, understand how your products or services fit their needs, and know how to price and deliver them. But if potential clients don’t have the confidence to work with you because you don’t have the backing of a trusted source, you’ll starve.
Overestimating cash flow
Typically, companies will not achieve desirable gross sales or show a net profit in the first year of operation. Businesses that require high start-up costs, in particular, will require long start-up periods. The business plan must recognize the potential for negative cash flow and demonstrate how fixed and variable expenses will be covered during that time. Know how inventory will be financed, payroll will be covered, and office rent will be paid.
When writing your business plan, conservative financial projections are strongly recommended. Customer acquisition may take longer than expected and the size of your purchases may initially be small. Also, a business may be profitable on paper and still suffer from cash flow problems, if customers don’t pay on time.
Underestimating start-up costs
Developing a reasonable estimate of how much it will cost to start the business is essential. You must be prepared to cover the cost of all permits, equipment, inventory, and personnel necessary to conduct business. If you plan to hire employees, it is important to have a good idea in advance of your minimum staffing needs (you can hire more as revenue increases).
“Magic thinking” business model
The business model illustrates how your company will become profitable. Well thought out interactions between the marketing, financial, and operations processes will promote and maintain profitability, and you must plan for how they will occur. The business model describes the core functions of the company.
Likewise, the value proposition of its products or services must be articulated. The overall marketing strategy and the selected tactics and resources that will promote the value proposition (intellectual property, patent rights, key relationships, or equity) will be considered. Sales distribution channels will be detailed.
Get to plan B (2009), by Randy Komisar and John Mullins, details the key components of the business model and advises business plan writers to segment their models into captions:
The revenue model, to describe what you will sell, your marketing plans, and how you expect to generate revenue.
The operating model, to detail where you will do business and how day-to-day operations will work
The working capital model, that is, the cash flow requirements of the business. Understanding cash flow helps you know when money will be available to cover expenses like rent and payroll (different from income). A business can generate adequate income (sales) and still suffer from cash flow problems.
Your business model will keep you organized and your priorities will be realistic. Things like quality control, collecting accounts receivable, managing inventory, and identifying strategic partners will mean much more than your number of followers on Facebook, for example. Best of luck to you and your new business!
Thank you for reading,