who needs a business plan?

Part III: So Who Needs a Business Plan?

So Who needs a business plan?

These days, if you are seeking financing of any form, you probably require one. Do you need a business plan to ensure the success of your business? I would say no. Don’t get me wrong, business planning can be a very valuable exercise. For some personality types (you know who you are!), a business plan is a requirement to ensure that they have thought through their business idea. These entrepreneurs are generally rash, and have likely entered into risky arrangements in the past. If this sounds like you, and you are considering investing personal funds into industries which have high capital costs, you would do well to stop and prepare a business plan.

For others, I would say that a business plan is no more than a checklist item to get your business launched. This is not to say that all business planning is bad. Rather, like reading literary classics in school, this is a checklist item that you need to get through the system. Some will take pleasure in preparing these, for others the term “business plan” evokes visions of weeks, or even months of pain.

Entrepreneurs like this may choose an app to build their business plan. After all, putting together a 25+ page document from scratch can be daunting. My own experiences with software and as a consultant led me to create SME Gurus and BizMula – two solutions that really simplify the process without losing sight of the value behind the thought process of writing a business plan.

What it really boils down to is this: why did you start thinking about a business plan: Was it a requirement from a lender or an entrepreneurship program? Did a friend or mentor recommend one? Did you just hear about it and think it was a good idea? Or are you just unsure of launching your business idea, and want to do your homework? Then you need to ask yourself, what kind of entrepreneur are you? Do you need a plan to help keep you on track, or can you plan on the go?

Regardless of your choice, don’t brush over this question, as it could be the difference between success and failure.

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Part 2: Why Businesses Fail

Since 1980 onward, business plans have become standard staple in lending and investing. They provide, or so their supporters will argue, a standardized way to look at a business. Business plans require entrepreneurs to actually “plan” and they are the road map an entrepreneur uses from start-up through to a full -scale operation.

So why is it then, that businesses with business plans still fail?

There are several reasons. Oftentimes, the challenge is not in the business plan itself but in the strategy of the entrepreneur and in the broader business model.

The first main reason that businesses fail, is that they are just generally bad business ideas. One of my favorite shows is the Canadian version of Dragon’s Den. Just watch one episode (the are available at www.cbc.ca) and see the sheer number of bad business ideas that exist. Bad ideas are bad for several reasons. The market for the product may be small or ill defined. The marketing or distribution strategy may be abysmal or non-existant and the entrepreneur themselves may be the biggest obstacle the business has.

The second reason that the businesses fail, is cashflow. Entrepreneurs are great at predicting prospective revenue, but poor at understanding cash flow. They are so eager to get orders, that they will take any payment terms from their customers, even if it is at their own expense. I have seen entrepreneurs come to me and they offer 90 day payment terms for their customers, but have all payments due in 30 days or less from their suppliers. It does not take a rocket scientist to figure out that there is going to be a cashflow problem here. Unless the entrepreneur has a good line of credit, or a large degree of personal savings, this issue can mean the death of the business.

There are many other reasons. Poor management. Inexperienced. Lack of contacts in the industry–take your pick. My favorite reason cited for the death of a business is poor planning. Poor planning by the entrepreneur.

Planning in itself is not the answer. What these critics mean, but rarely get around to saying is risk mitigation strategies. Identifying what the Risks are to a business and confonting ways to change/challenge those risks is really where the crux of all business success starts.

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