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Business failure is a distinct possibility for many businesses, especially for start-ups during the so-called three-year "valley of death". A key to getting through these years is to avoid the obvious mistakes. Generally speaking, businesses fail for significant and substantial reasons which are often very evident to outsiders. Insiders often fail to see them because of their closeness, determination and so on. Areas where failure is most likely to occur include finance. markets/sales, offerings, management and operations. See a detailed listing of possible reasons for business failure.

Clearly, there are very many reasons as to why businesses fail. The key point is that causes are usually very apparent (especially with hindsight) and the trick is to anticipate them by executing appropriate tactics and strategies from the outset. Three examples:

  • Use market research to confirm demand and assess suitability of proposed offerings.
  • Create a management team to offset any gaps in experience or expertise.
  • Raise equity to reduce exposure to interest rate changes, reduce gearing etc.

Given that reasons for failure are often both simple and clear, it should (in theory) be possible to reduce the possibility of failure through prior experience, forethought and effective planning.

For more information, see Devising Business Strategies, Developing a Strategic Business Plan and Writing a Business Plan. Also look at and/or participate in the online poll on Strengths & Weaknesses of Businesses.

When preparing financial projections for your business plan, be conscious of the pitfalls and dangers listed below. These can arise as the result of a lack of foresight or insight, or because of excessive optimism. As they can lead to underestimation of the resources required to develop a business with potentially disastrous consequences, it can be counterproductive to overstate its potential.

Financial Planning Traps
  • Using financial forecasting as a substitute for business planning.
  • Ignoring historic trends or performances at company, sectoral and national levels.
  • Overstating market shares and growth, sales forecasts, and profit levels.
  • Giving insufficient consideration to working capital requirements.
  • Underestimating costs and delays likely to be encountered.
  • Disregarding industry performance norms and competitors' responses.
  • Breaching generally-accepted financial guide lines and ratios.
  • Making unduly optimistic assumptions about the availability of loans, trade credit, grants, equity etc.
  • Seeking spurious accuracy while failing to recognize matters of strategic importance.

 

Realistic views should always be taken of a business's prospects, prospective profits, funding requirements etc. There is often merit in compiling "worst" case projections to complement "most likely" or "best" forecasts.

In practice, the realization of financial projections, especially for a new business without any trading history, might easily take twice as long and cost twice as much as expected. This is the double (costs), double (time) or half (revenues) rule.

Remember that it is much less painful to deal with a flaw in a business at the planning stage, than later on when commitments have been made and the business has started trading.

Our software planners - Exl-Plan and Cashflow Plan - offer comprehensive facilities for doing sensitivity analysis and exploring "what-ifs".

Based on experience reviewing hundreds of business plans for new and small businesses mainly in the "tech" space, I drafted the following list of common mistakes and flaws seen in plans. Follow them if you want to write a truly dreadful business plan and avoid them if you wish to write a good plan:

  • Don't include a contents list, don't number any pages and don't follow any consistent approach for section heading etc.
  • Do write the plan's summary before you write the plan, or, better still, don't include any summary.
  • Do develop your business strategies and ideas progressively as you write the plan. It will draw readers into the process and make the ending more unexpected !
  • Do start the plan with your financial projections - the more detail and tables the better !
  • Don't summarize the projections - let readers figure out the full-year totals, profits, cash flows and so on for themselves.
  • If you include projected balance sheets, make sure that they don't balance.
  • Don't produce any separate cash flow forecasts, just rename the P&L or income projections.
  • Do ensure that your financial projections indicate 40% profit margins in the third year. If raising external capital, do explain that the projected return to investors will exceed 100% per annum within three years.
  • Do mention in the marketing section that your proposed offering has no competition. This will save you having to do any market analysis.
  • Do base the plan's marketing section around a few quotes from research reports that you found on the web.
  • Don't consider customer behavior, needs or trends unless you wish to present a series of supportive (unresearched) theories that will support your plans.
  • Do base your sales projections on the presumption that you will gain, at least, a 1% share of the total market and don't bother with any market segmentation.
  • Do pad out your sales plan with lots of buzz words like customer-driven, first-to-market, market-led. Do underpin it with a disproportionately small (or large) marketing budget but don't be too explicit as to how, where and when it will be spent.
  • Don't include any background to your business idea/invention, progress to date or current status.
  • Do spend at least ten pages describing your offering - do make this as detailed and technical as possible to impress your readers. Don't mention any benefits as these should be obvious !
  • Do anticipate technical breakthroughs and new offerings but don't discuss related costs or risks.
  • Do include a 6-8 page CV for yourself but don't worry about building a management team or sorting out operational issues like production, delivery etc. Do make some heroic assumptions about these matters and do pledge to address them at a later date.
  • Do spend as little time as possible on the plan but do make sure that it runs to at least sixty pages even if this entails lots of padding and inclusion of superfluous or irrelevant material.
  • Do use as wide a variety of font types, sizes and colors as possible to add style to your plan and don't bother using a spell checker.
  • Don't let a qualified outsider see your emerging plan and don't bother with reading over or redrafting.

More seriously, if you reverse each Do and Don't, you'll have a useful guide for preparing a sound business plan. You can get this list in a printable checklist format at Checklist for Better Business Plans

For further help, see Insights into Business Planning, Business Plan Guide and the white paper on How to Write a Business Plan.

How long should it take to write a business plan and how should the time be allocated?

Some useful answers to these questions can be gleamed from an ongoing survey being conducted by PlanWare amongst people who have prepared written business plans.

Based on over two thousand responses, more than one-third (38%) of the respondents spent less than a month on their plan; a similar proportion (37%) worked on their plan for 2-3 months; and the balance (25%) spent several months on the task. More detailed analysis of these findings indicated that:

  • The elapsed time to prepare comprehensive plans was considerably longer than that for basic plans.
  • Over one-third of all plans compiled within an elapsed time of one month were used to seek bank loans or approvals from shareholders/directors, or they were compiled for internal/personal use.
  • About one-third of all plans used to raise venture capital/equity took least three months to research and write.

The survey also showed that the task of actually writing the plan was usually the least time consuming part of the planning process as almost two-thirds (63%) of respondents spend more time researching than writing their plan. For a fifth (21%) of respondents researching and writing times were about equal. Only a small minority (16%) undertook little or no research before drafting their plan.

For more findings, see a detailed analysis of the survey findings and the latest survey results.

New Business Ideas

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This entry deals with the tricky task of assessing new business ideas.

Having built up a moderate list of ideas, these must be evaluated so that a short-list of preferred options with the greatest potential and lowest risk can be assessed in greater depth.

One way of evaluating ideas would be to use a simple scoring system using gut-feel with a limited number of criteria such as personal fit, degree of risk, funding need and so on - see a comprehensive list of factors at Getting New Business Ideas.

Before scoring individual ideas, run through the criteria and set what you feel should be minimum desirable scores for each. The resultant total could be used as your overall minimum threshold. If some ideas don't achieve satisfactory scores, drop them and look for better ones.

Once your short-list has been developed, you will need to start devoting substantial time to assessment, research, development and planning. For a start, you could pursue the following tasks:

      1. Discuss products/services with prospective customers
      2. Assess the market using desk & field research
      3. Analyze your competition
      4. Consider possible start-up strategies
      5. Set ball-park targets and prepare first-cut financial projections
      6. Prepare a simple action plan
      7. Critically examine ideas from all angles

      For more insights into these tasks, see Getting New Business Ideas.

Bear in mind that the incubation period for a new business can easily last several months or even years. Don't rush into the first feasible idea without letting it incubate or develop in your mind for a reasonable period. There might be a tendency to get all fired up and enthusiastic such that your heart is starting to rule your head. Instead, stand back and think!! Do not be afraid to seek external assistance from professional advisers or from enterprise support organizations which are virtually everywhere. These include SBDCs in the US, Enterprise Agencies & Business Links in the UK, County Enterprise Boards in Ireland, EC BICs throughout the EU and so on......

For help with converting your preferred business idea into a business plan, see How to Write a Business Plan.

Here are some quotations to motivate and inspire the planning and development of your business:

    • Rise early, work hard, strike oil. (J Paul Getty)
    • The person who doesn't scatter the morning dew will not comb grey hairs (Irish proverb)
    • A chicken doesn't stop scratching just because worms are scarce (Grandma's Axiom)
    • A wise man turns chance into good fortune. (Thomas Fuller. Gnomologia, 1732)
    • A great fortune depends on luck, a small one on diligence. (Chinese proverb)
    • Luck is a dividend of sweat. The more you sweat, the luckier you get (Ray Kroc)
    • I'm a great believer in luck and I find the harder I work, the more I have of it. (Stephen Leacock)
    • Success is more attitude than aptitude. (Anonymous)
    • If, at first, you don't succeed, try again. (Proverb)
    • If, at first, you do succeed, try to hide your astonishment.(Los Angeles Times Syndicate)
    • There is nothing more difficult...than to take the lead in the introduction of a new order of things. (Niccolo Machiavelli)
    • If you want truly to understand something, try to change it. (Kurt Lewin)
    • Do not follow where the path may lead. Go instead where there is no path and leave a trail. (Ralph Waldo Emerson)
    • You cannot travel on the path until you become the path itself. (Gantana Bouddha)
    • There is no top. There are always further heights to reach. (Jascha Heifetz)
    • For the wise man looks into space and he knows there is no limited dimensions. (Lao-tse)
    • It is not best that we should all think alike; it is a difference of opinion that makes horse races. (Mark Twain)
    • It's not because things are difficult that we dare not venture. It's because we dare not venture that they are difficult. (Seneca)
    • It is a myth, not a mandate, a fable not a logic, and symbol rather than a reason by which men are moved. (Irwin Edman)
    • Great spirits have always encountered violent opposition from mediocre minds. (Albert Einstein)
    • Every wall is a door. (Ralph Waldo Emerson)

For more quotations see this list and look here for lots of bad advice and decisons !  

So, you have a solid idea for a business and you are wondering how to turn it into a real business.

Try following these steps:

  1. Clarify your business idea in terms of what you will offer customers. See getting new business ideas.

  2. Conduct market analysis and research (desk and/or field). See profiling target markets.

  3. Refine your business idea and flesh it out so that you can prepare a relatively comprehensive description and market positioning statement (as regards price, features etc.). See product/service descriptions.

  4. Compile a short strategic plan to give you an overview of your idea from a "total" business perspective. See developing a strategic plan and online strategic planner.

  5. Write a business plan with projections AND include an action plan. This plan can range from an eight-page informal document (for your eyes only) to a 40-plan comprehensive plan (for raising external finance etc.). See how to write a business plan and get insights into a business plan. For projections, look into using financial projection software

  6. Use your plans to help mobilise resources. These could cover pilot operations, raising finance, prototyping, R&D, creating networks, recruiting staff, locating premises/equipment and so on.

  7. Update your business plan and related action plan (especially if #6 takes time).

  8. Start executing your business and action plans.

  9. Revise your action plan and key financial projections (especially short/medium term cashflow forecasts) in light of initial results.

 

 

Length of a Business Plan

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What is the ideal page length of a business plan? Well, what is the length of a piece of string? The answer really depends on the purpose and scope of the plan - are we talking about a basic or comprehensive plan.

Analysis of findings from an ongoing survey about business plans by PlanWare indicates that the main parts (i.e. the body of plan excluding appendices etc.) of many basic plans are under ten pages long whereas comprehensive plans are often 10-25 pages long. More specifically, the analysis found that almost half of all comprehensive plans were at least 26 pages long as compared with just one-tenth of basic plans (see Fig 3 below).

image003

When budgeting your plan's length, go for the shortest possible plan consistent with your business's scale, objective of the plan etc. - aim for quality rather than quantity! Bear in mind that the overall length of the plan is likely to increase as writing progresses. If your plan gets too long, do some ruthless editing and redrafting. If it is any consolation, it should be much easier to shorten a long plan than to lengthen a short one!

Based on the suggested section lengths in our Business Plan Guide, the length of a comprehensive plan could range between 27 to 47 pages (excluding cover, contents list and appendices). This works out at a minimum of about two pages for each main section within the plan. Obviously, this length should be scaled back to about ten pages or so for a new or established business (of almost any size) preparing a basic plan by excluding sections and scaling back the length of remaining sections.

Here are some suggested new year resolutions for 2010 for better business planning applicable to any established business:


It is unusual for business and personal interests to coincide as has happened in recent weeks as a result of the publication by the Irish Government of a business plan for the National Asset Management Agency (Nama).

Nama is being set up to effectively manage the world's largest property portfolio valued at about €77 billion (US$ 115 billion). Its purpose is to rescue the Irish banking sector from insolvency and to restart normal lending in the Irish economy.

The need for Nama has arisen from an unrestrained property binge over the past decade led by ineffectual financial regulation, foolish bankers, greedy developers and an incompetent government. Excuse the intemperate language but there is no other way to describe their roles in pushing Ireland into the worst recession experienced by any developed nation since the Great Depression. This resulted in a huge oversupply of over-priced commercial property and hundreds of thousands of house owners facing into negative equity. More on the Irish property boom. Several books have been published recently about the role of politicans, bankers, regulators and developers in stoking the boom - see our bookshelf to browse or buy the best sellers.

Nama aims to address the bubble in commercial property by purchasing all the property-related loans of five Irish-owned banks for €54 billion with a view to securing capital and interest payments of these loans from developers over the next decade. While the Government accepts that it is overpaying for these loans, it expects (hopes?) to make a profit of over €5 billion overall based on its business plan.

Critics of Nama argue that Irish taxpayers could lose up to €10-15 billion according as many developers default on their loans. Brian Flanagan, founder of the PlanWare site has been deeply critical of Nama. Read his assessment of Nama's business plan here.

Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail.

A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).

Nor should a strategic plan should be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan provides the foundation and frame work for a business plan.

A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally - see white papers on Developing a Strategic Business Plan and Devising Business Strategies for further insights.

Finally, use our free Online Strategic Planner to create your own 2-3 page strategic plan - see this feedback from users.

Before any detailed work commences on writing a comprehensive business plan, you should:

  • Clearly define the target audience
  • Determine its requirements in relation to the contents and levels of detail
  • Map out the plan's structure (contents page)
  • Decide on the likely length of the plan
  • Identify all the main issues to be addressed.

Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences.

Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.

For more tips and suggestions, check the white paper on Writing a Business Plan and Free-Plan our free 150-page Business Plan Guide and Template (Word format). Also, refer to the 30-point Checklist for Preparing a Business Plan.

Twelve things to do when writing your business plan:

    1. Create a framework for the plan e.g. table of contents.
    2. Identify possible appendices, attachments etc.
    3. Estimate page lengths for each key section.
    4. List main issues and topics to be covered within key sections.
    5. Assign work programs based on the framework and lists.
    6. Draft all key sections in a logical sequence.
    7. Check the preliminary draft for completeness and plug gaps.
    8. Stand back and take a detached overview of the draft.
    9. Let an outsider or adviser critique the latest draft.
    10. Redraft, fine tune and spell check.
    11. Write the executive summary and plan's conclusion.
    12. Get an independent assessment of the final draft.
For further help, see the Business Plan Guide, Writing a Business Plan and Insights into Business Planning.

About this Archive

This page is an archive of recent entries in the Business Planning category.

Business Ideas is the previous category.

Cash Flow Management is the next category.

Find recent content on the main index or look in the archives to find all content.

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