Many people think that coming up with a business idea is the most difficult challenge, but that is only the tip of the iceberg. New businesses often fail due to poor planning. According to the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first ten years. Only 25% of new businesses make it to 15 years or more. Most of the causes of failure can be avoided with proper business planning, and the below causes of failure should be addressed in a business plan.
Cash Flow Management
If you have ever lived paycheck to paycheck, you understand the importance of cash flow management. It is difficult to pay bills when you are waiting to receive payments. In business, you perform a job, send an invoice, then get paid within 30 days. (Of course, we all know that not every person or business pays bills on time.) In the meantime, you still must pay your expenses, like employees’ salaries, rent, vendor bills, etc. Therefore, a new business must plan ahead. Require a down payment for your services; require faster invoice payments; or you can even ask your vendors to invoice you later. As a new business, you must make sure you have enough cash flow to carry you through month to month. A business should consider not just the cost of doing business or expenses when starting a business, but the cash required to run the business month to month. If you are not an accountant or CPA, I strongly encourage you to find one. They are important to rely on for tax season, but they provide so much more than tax services.
Human Capital
One common mistake new businesses make is not having the right human capital on hand. A new business owner should focus on utilizing his/her personal area of expertise and seek out assistance in the areas he/she is not an expert. As they say, “A jack of all trades is an expert at none.” Every business owner is an expert in at least one area of the business. Make sure you utilize resources such as lawyers, CPAs, bookkeepers, marketers, and HR experts. To augment your internal team, make sure to be exclusive and target well. Hire people that compliment your strengths and shore up your weaknesses. Do not be afraid to utilize a HR expert or consultant to assist you if this is not your strength.
Time Management
Entrepreneurs wear A LOT of hats during any single day. From HR director to manager to janitor, an entrepreneur has a lot of moving parts to address from minute to minute. It is important to make time. Remember—time is money. Set annual, quarterly, monthly, daily, and even hourly goals. Use good old-fashioned pen and paper or software to manage your time. Do not focus on tasks that do not align with your goals, and make sure to delegate. Often entrepreneurs do not trust others to complete tasks at the same level of quality, but delegation and teamwork is the only way to grow your business.
Know Your Why
As Simon Sinek stated, “People don’t buy what you do, they buy why you do it.” For example, Apple did not define their why as just building computers like Dell did. Apple defined their why as making beautifully designed, simple to use, and user-friendly products. A lot of businesses fail because they do not know their why. In a business plan, the mission, vision, guiding principles, and marketing need to all be connected to the “why”. In essence, the “why” is the business’s true unique selling proposition (USP), and this is what will attract customers and differentiate a business from competitors.
Target Market
You cannot please all people all of the time. However, you can pick a niche and please them. Too many times entrepreneurs try to be all things to all people, and it just does not work. Define what you do really well to a specific niche. This is where marketers can really help. This is a smart investment. The market research and SWOT analysis utilized to determine your target market and niche will not only help you launch your new business successfully, but you will also garner serious ROI.
Marketing Strategy
The “build it and they will come” strategy does not work. Customers are now smarter than ever, with Google only a search button away. You need to know how to market your products or services, and you want to garner the best ROI as possible. Inbound marketing? PPC? Print? TV? Radio? Sponsorships? A marketing strategy should contain a marketing plan and budget. Again, unless you are a marketing expert, seek out a marketing strategist.
Capital
A business plan is required to start or grow a business. Traditional bank loans and investors require a business plan before deciding whether to loan or invest in your business. It is best not to wait until you need the capital to start working on your plan. The moment you realize you need a capital investment, you should be ready to go with your business plan. In your business plan, you want to make sure you think about capital requirements not just for the coming year but for even five years from now.
Success Planning
This may be the biggest challenge for a new business. You may have a great business idea, but why do you want to be a business owner? The fantasy of owning a business is much more pleasant than the reality. A business owner is never really off the clock. Many businesses fail simply because they focused on the dream and not the reality. Define what success looks like to you. What do you want to get out of your business, financially and soulfully? How does owning a business fit your lifestyle and family? A business plan helps an entrepreneur to take the fantasy of opening a business and turn it into a reality. Sometimes by going through the work of creating a business plan, a person decides that owning a business is not for them, and that too, is still a success.
If you have questions on how to craft a business plan, MPWRSource offers a Business Planning Bootcamp which utilizes the CORE FOUR Business Planning Course to teach aspiring or existing business owners the information and skills in business planning. Reach out to the MPWRSource Squad for more info today!
