Fatal Flaws in Your Business Plan


 Fatal Flaws in Your Business Plan

Fatal Flaws in Your Business Plan
Fatal Flaws in Your Business Plan

A business plan is a plan that aspiring entrepreneurs are guided by when creating their new business ventures. From 2008 to 2010, I taught a 20-week course on writing business plans at a women's business development organization affiliated with the SBA. We met for three hours every week, and the students wrote their plans week after week, guided by the lessons.

When evaluating a business concept, unrealistic expectations or erroneous thinking may arise, which can undermine planning. Excitement about this idea can distort a person's ability to see potential obstacles. The following are scenarios that aspiring entrepreneurs should beware of.

Unrealistic expectations

While it is sometimes true that using yourself as an ideal customer is a reasonable idea, since you understand the value and availability of this product or service, you may misinterpret the size of the market and the attractiveness that can be achieved outside of a select group of true believers.

Insufficient information

Confirm the need for your products or services when you research and check the number of potential customers who have money and motive to buy from you.

Also, make sure you understand the purchase process. Who gives the green light to the sale? What is the price range of the "sweet spot"? Finally, where are potential customers getting these products or services now?

Access to clients

Customer access is everything, and some industries or target customers seem impenetrable. You can identify the right customers, understand how your products or services meet their needs, and know how to set prices and provide services. But if potential customers don't have confidence that they will work with you because you lack approval from a reliable source, you will starve.

Overstating cash flow

As a rule, enterprises do not achieve the desired gross sales and/or do not show net profit in the first year of their activity. Enterprises that require particularly high initial costs will require long periods of build-up. The business plan should recognize the potential negative cash flow and demonstrate how fixed and variable expenses will be covered during this time. You need to know how stocks will be financed, wages will be paid and office rent will be paid.

When drawing up a business plan, it is strongly recommended to use conservative financial forecasts. Attracting customers may take longer than expected, and the size of their purchases may initially be small. Moreover, an enterprise can be profitable on paper and still suffer from cash flow problems if customers do not pay on time.

Underestimating the initial costs

Developing a reasonable estimate of how much it will cost to launch an enterprise is essential. You must be prepared to cover the costs of all permits, equipment, inventory and personnel necessary to run a business. If you are planning to hire employees, it is important to have a good idea in advance of your minimum staffing needs (you can hire more as your income increases).

The business model of "magical thinking"

The business model illustrates how your company will become profitable. A well-thought-out interaction between marketing, financial and operational processes will help to increase and maintain profitability, and you should outline how this will happen. The business model describes the main functions of the enterprise.

Similarly, the value proposition of your products or services should be clearly stated. The overall marketing strategy and the selected tactics and resources that will promote the value proposition - intellectual property, patent rights, key relationships or capital - will be taken into account. The distribution channels will be described in detail.

Transition to Plan B (2009) by Randy Komisar and John Mullins describes in detail the key components of the business model and advises the authors of business plans to break their models into subheadings:

An income model that describes what you will sell, your marketing plans, and how you expect to generate revenue
An operational model to describe in detail where you will do business and how day-to-day operations will function.
The working capital model, meaning the requirements for the cash flows of the business. Understanding cash flow helps you know when money will be available to cover expenses such as rent and wages (this is different from revenue). A business can generate sufficient revenue (sales) and at the same time suffer from cash flow problems.
Your business model will keep you organized and your priorities realistic. Issues such as quality control, collection of accounts receivable, inventory management and identification of strategic partners will mean much more than, for example, the number of your Facebook followers. Good luck to you and your new business!