A business plan is the blueprint that guides aspiring entrepreneurs as they build their new business ventures. From 2008 – 2010, I taught a 20-week business plan writing course at an SBA-affiliated women’s business development organization. We met for three hours each week and students wrote their plans week by week, guided by the lessons.
When evaluating a business concept, unrealistic expectations or flawed thinking could creep in and undermine the planning. Excitement about the idea might distort one’s ability to see potential obstacles. What follows are scenarios that entrepreneurs-in-the-making should beware.
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 might misinterpret the size of the market and the traction that can be achieved beyond a select group of 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 motive to buy from you.
Furthermore, make sure that you understand the buying process. Who green-lights the sale? What is the sweet spot price range? Lastly, where do potential customers obtain these products or services now?
Access to customers
Access to customers is everything and some industries or target customers seem impenetrable. You may identify the right customers, understand how your products or services fit their needs and know how to price and deliver. But if potential customers do not have the confidence to work with you because you lack an endorsement from a trusted source, you’ll starve.
Usually, businesses won’t achieve desirable gross sales and or show a net profit in the first year of operations. Businesses that require high start-up costs especially will require long ramping-up periods. The business plan must acknowledge the potential for negative cash-flow and demonstrate how fixed and variable expenses will be met during that time. One must know how inventory will be financed, payroll will be met and office rent will be paid.
When writing your business plan, conservative financial projections are strongly advised. Customer acquisition may take longer than expected and the size of their purchases may initially be small. Moreover, it’s possible for a venture to be profitable on paper and still suffer from cash-flow problems, if customers do not pay on time.
Underestimating start-up costs
Developing a reasonable estimate of how much it will cost to get the venture up and running is essential. You must be prepared to meet the cost of all permits, equipment, inventory and staffing necessary to conduct business. If you plan to hire employees, it’s important to have a good idea of your minimum staffing needs up front (you can hire more as revenues increase).
“Magical thinking” business model
The business model illustrates how your venture will become profitable. Well thought-out interactions between marketing, financial and operations processes will promote and sustain profitability and you must map out how these will occur. The business model describes the core functions of the venture.
Likewise, the value proposition of your products or services must be articulated. The overall marketing strategy and selected tactics and resources that will promote the value proposition—intellectual property, patent rights, key relationships, or capital—will be accounted for. Sales distribution channels will be detailed.
Getting to Plan B (2009), by Randy Komisar and John Mullins, details the key business model components and advises business plan writers to segment their models into sub-headings:
- The Revenue Model, to describe what you’ll sell, your marketing plans and how you expect to generate revenue
- The Operating Model, to detail where you’ll do business and how day-to-day operations will function
- The Working Capital model, meaning the business cash-flow requirements. Understanding cash-flow helps you know when money will be available to meet expenses like rent and payroll (it is distinct from revenue). A business can generate adequate revenue (sales) and still suffer from cash-flow problems.
Your business model will keep you organized and your priorities realistic. Matters such as quality control, collecting accounts receivable, inventory management and identifying strategic partners will mean much more than your number of Facebook followers, for example. Best of luck to you and your new business!
Thanks for reading,
Source by Kim L. Clark
FOR INFORMATIONAL PURPOSES ONLY. This Website is made available by the Publisher for educational and other informational purposes only, and this Website seeks to facilitate engaging and constructive conversations about business innovation and the application of technological advances in business and administrative profession. The “Publisher” is Kaduna Business School, LLC.
FAIR USE NOTICE. This Website may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. Such material is made available in an effort to advance understanding of issues of innovation and the application of cutting-edge technologies in the law and the legal profession. The Publisher believes this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the U.S. Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this Website is included for educational and informational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond “fair use,” you must obtain permission from the copyright owner. https://ezinearticles.com/?Fatal-Flaws-in-Your-Business-Plan&id=9827256 Fatal Flaws in Your Business PlanKim L. Clarkhttp://ezinearticles.com/expert/Kim_L._Clark/647250