Research indicates that less then 20% of small businesses execute any type of business plan. Research also indicates that only about 20% of all small businesses survive the first five years of existence. Is that a coincidence? I don’t think so.
Unfortunately, for the few brave and courageous business owners that do develop a plan for their business; many of those business plans fail. While their intent is good, the results are disappointing.
Why? Here are Ten Reasons:
Reason #1: The plan does not start with an end in mind. Your plan’s development should start with a determination of the organization’s primary aim. Why are you in business? The remainder of the business plan then flows from that statement of purpose. As Steven Covey states in his book of habits, “Begin with the end in mind.” If you take a trip, your first and possibly most important decision is: where am I going? What is my destination? That is your primary aim. You then establish objectives, goals, and strategies that will keep you driving towards your pre-selected destination.
Result # 2: The plan is incomplete. Your business plan must include certain information that may be required by individuals outside of the organization including bankers, investors, channel partners, etc. These items may include prior years financials, resumes for top management, a history of the business, and an analysis of the competition. While this information may not be relevant to your development of the business, it might be very important to people outside of your business making critical decisions about your company based on this plan.
Reason #3: The plan is too long and difficult to read. Your plan typically should not exceed 15-20 pages. Nothing turns off a banker more then to have your version of War and Peace sitting right in front of him. Be concise. The plan should be written be in layman’s terms. The appearance of the plan is important. This document should be the most powerful selling tool you have. It should persuade the reader to thinking that your company is successful today and will continue to be so in the future. The appearance of the document should reflect that intent. If necessary, have it typeset.
Reason #4: The plan is developed only by the business owner or top management. This is the business plan. Not the owner’s plan. If you expect the participation of the employees in the execution of plan, you must involve them in the development of the document. Your employees should also be involved in the timely the evaluation of the business plan. Their input will be invaluable to you in this process as you evaluate and update your plan.
Reason #5: The plan lacks adequate “front-end” analysis. Your business plan should be based on a thorough analysis of your business using a S.W.O.T. approach: Strengths, Weaknesses, Opportunities, and Threats. The identification of these factors will enable you to determine the appropriate goals and strategies your plan must include in order for you to reach your primary aim. Before we go on our “trip’, we always check to see that the “roads” are safe and the vehicle is “well-tuned”.
Reason #6: The plan is written for the sole purpose of raising capital. Such a one-dimensional plan is sure to fail. Your plan should serve as map by which you can reach your organization’s primary aim. You will then want to share this document with anyone who has a significant stake in your business. These stakeholders may include your employees, your creditors, your banker, and even your customers. Each of these stakeholder groups has a vital interest in the direction of your company. Each of these groups should be taken into consideration when developing your business plan.
Reason #7: The plan is written, approved, and filed for safekeeping until next year. Your plan should be reviewed, evaluated, and updated regularly. The development of the plan should be an ongoing process. I suggest that you write the plan annually, review it monthly, and update it quarterly. Do not hesitate to change your plan if necessary. If you decide to change your direction or destination, make sure that you also change your map.
Reason #8: The plan’s financial projections are unrealistic. Your plan should include financial projections that are accurate, reasonable, and attainable. These numbers should be based on hard data. Loan officers are trained to reduce revenue projections by 50% and double certain expense projections. This is particularly true for a new business due to a lack of past financial performance. For an existing business, your financial projections should be based on historical data, your situational analysis, and growth expectations. Be prepared to defend your financial forecast and its underlying assumptions.
Reason #9: The plan is not balanced in its attention to the primary functions of the business. Your business plan should address all three of the primary functions of the organization: Marketing, Operations, and Finance. Each area may not be of equal importance to your company. However, all three functions are interrelated. A lack of attention or planning in one area might significantly impact one or both of the other areas. Remember, your organizational chain is only as strong as the weakest link in that chain. The development of strong links starts with the business plan.
Reason #10: The plan is dependent upon people for the business to be successful. Your plan should create a system of doing business. That system then provides jobs for people. Remember, the true value of a business is based not on what it sells, but how it sells it. McDonald’s has been successful not because of its hamburgers, but because of the McDonalds system which provides
Tim Fulton is a nationally recognized small business consultant and management trainer. He is also a very popular public speaker. Tim can be reached at timfulton@hotmail.com.
