If you run your own business or are looking to start up:
1. Incredible Financial Projections
One of the key areas business plan readers will focus on will be 'the numbers'. Specifically, they will concentrate on
the projected Income Statement or Profit & Loss. The fact that numbers are projected does not mean that those figures
can be included without due rigour or process. They need to be credible, defensible and consistent.
All costs should be recorded including salaries to owner managers who run the company. It is not credible to generate P&L
projections where expenses such as salaries are omitted to demonstrate managerial commitment or to artificially reduce losses,
etc.
2. Lack of a Viable Opportunity
A business plan needs to not only describe an opportunity, it must also detail how the opportunity can be exploited profitably
and demonstrate the company’s ability to deliver what is required. In recent years there has been a significant increase
in plans that are inaccessible to the average reader because they are couched in technical jargon and unfamiliar terms.
If the reader of the plan cannot fully grasp who the prospective customer is, how that customer will be targeted, and the
prospective benefits from the proposed solution, the reader will not invest. In an increasingly time-pressed world, people
crave simplicity.
3. No Clear Route to Market
All opportunities are only prospective ones without evidence that the target market can be accessed profitably. Many entrepreneurs
are inherently product focused, concentrating their energies on 'the idea' to the exclusion of many other important elements
such as how they intend to access their customer base.
The growth in popularity of the Internet has certainly helped niche producers find geographically dispersed customers,
making many more ideas commercially viable. However, it does not come without its challenges, as creating awareness online
is both costly and intensely competitive.
The business plan must include a comprehensive and credible analysis of how the company intends to secure access to their
target market in a cost-effective manner. The low cost and barriers to entry for websites have resulted in the creation of
hundreds of thousands of sites. Ensuring that a site stands out from the crowd is easier said than done.
Knowledge of who the customer is and how they buy is very important, but identifying them and accessing them on an individual
basis is much more challenging and costly.
4. Overestimation of Revenues
Another key element of the plan will relate to the size and value of the opportunity. Does the business plan describe a
small local business-to-business opportunity with limited scalability/ return or is it a concept with widespread or even potentially
global consumer appeal? While the description of the market opportunity will undoubtedly be couched in positive terms, an
obvious danger relates to the innate optimism of entrepreneurs and their tendency to exaggerate every business opportunity.
Why not calculate the number of customers the business intends to capture and their average revenues. These two inputs
are easier to calculate and also to justify in a wider discussion.
5. Lack of Appreciation of the Importance of Good Cash Flow Management
Good cash flow management is vital when businesses pursue investment opportunities where there are significant cash flows
out, in advance of the cash flows coming in.
The start-up phase of a business is an obvious time when cash flow is under stress with uncertain income streams sitting
alongside a raft of certain and often overdue bills. This tension is exacerbated if there are delays to the income streams,
e.g. if a restaurant fails to open on time.
Once up and running a company can bank the income immediately if they are a 'cash-only' business; however, if they sell
on credit, they receive the cash in the future and hence may need to pay some of their own expenses before that income hits
their account. This will put a further strain on the company's solvency.
6. No Clear Objective
What is the main purpose of the plan? If it is to seek investment in the business, it is important to clearly describe
the investment opportunity. As mentioned previously there is a tendency amongst entrepreneurs to focus myopically on 'the
product' or 'the idea'. This is where they expend most energy but alas that is only one part of the process.
7. No Evidence of Real Demand
Another main area of interest when planning (linked to Point 4) is justifying the sales forecast or demand levels for the
product or service. There are two main elements to forecasting – the use of facts and the use of subjective assessment/
judgment.
However, no matter how unique a concept is, if the market is defined widely enough, it is likely that figures from alternative
offerings (facts) can be used to help assess likely demand levels (judgment). The aim of sales forecasting is to come up with
some revenue figures that can be considered to be credible in the wider context. While earlier we countenanced against excessively
optimistic estimates, here we are delving deeper to ensure there is, in fact, real demand for the offering.
Unless there is verifiable demand for the idea, the risks grow out of all proportion, particularly if the initial start-up
or investment costs are high. Is it possible to test the idea in real time, either by identifying comparables in other geographic
areas or analyzing Google search logs or selling via eBay? Again the business plan has to convincingly address the issue of
demand rather than concentrate in isolation on 'the idea'.
8. Business Plan Inconsistencies
A business plan needs to be consistent throughout as all the various strands are brought together into one single entity
– the plan. If there are multiple authors of the plan the risks increase that certain inconsistencies will emerge.
Similarly, any presenters of the plan must be fully cognizant of all facts and stay ‘on script’ so as to ensure
that a cohesive story is being told. The numbers must also be consistent with the broader content so that there are no contradictions
between them.
9. Playing Down the Competition
There is always competition. Yet the number of times the phrase "there are no main competitors" appears in plans is considerable.
No matter how unique the proposition, there will also be some other business competing for the same scarce resource, i.e.,
people’s money. While competitors may not always be obvious in product terms, competitors emerge upon assessment of
the key needs the product fulfills.
10. Rushing the Output
The plan needs to be right the first time and the content needs to be accurate, clear and also without spelling or grammatical
mistakes. More often than not business plans need to be completed by a certain date and hence the final stages can be rushed.
Consequently, in many instances the final output does not do justice to the plan. Attention to detail at the end is vital,
so it is important to ensure the following:
- The plan is printed on good quality paper and bound where appropriate.
- Tables and Charts have been edited to ensure they are formatted correctly.
- Content of the plan has been edited down to a digestible size (Addendum can be provided on request).
- Someone removed from the process has independently proofed the plan.
- If a presentation is part of the process, it should reflect the Executive Summary.
If you work for somebody else:
- Check your progress fits in with your aims. If not what do you need to do to change this. If you need to take
further courses click here and book on something to get you moving. It could be the inkling of motication you were looking
for.
- If you need flexible hours try asking for them as all employers now have the responsibility to see whether they can assist
parents of young children.
- Ask about childcare vouchers if you are not already making use of them. Information can be obtained here.
