Business failure is a distinct possibility for many businesses, especially for start-ups. According to the SBA, 30% of new businesses fail during the first two years, 50% during the first five years and 66% during the first 10 years. Businesses fail for many reasons which include:
- Poor Leadership or Lack of Leadership: Owners may lack sufficient business experience in areas such as finance, selling, production, human resources etc and unless they recognize it and seek help, they won’t succeed.
- Poor Brand Image or Lack of Brand Image. Inadequate Target Marketing, poor marketing strategy or lack of marketing will result in an unknown product or company or one that does not stand out .
- Not Being in Tune with Customers Needs: If you are not listening to customer feedback, you lose your customer base.
- Failure to Achieve a Profitable Product/Market Fit: There may not be enough demand for the product or the price the market will pay won’t produce enough of a profit.
Despite a high failure rate, most businesses do not anticipate failure and don’t want to start on a bad note. A company’s business plan is essentially a road map of a business’s future. In it, business owners evaluate their basic business objectives, vet their strategies, and recognize their strengths and limitations.
Business plans are used for internal planning and forecasting, obtaining financing for operations or expansion, mergers or acquisitions, divestitures or spin-offs and restructuring.
While each business is unique, the basic elements are the same in most business plans. Every business owner should decide how they want to run their company.
The body of the business plan contains four distinct components:
- The Executive Summary:
- The Product or Service
- The Market
- The Marketing/Distribution Strategy
- Competitive Analysis
- Operations
- The Management Team & Personnel
- Financial Data
Although it is rare, the business plan should also include a fifth section, The Failure or Damage Control Plan
All businesses will experience difficult times. Whether you survive them will depend on how well you are prepared to cope with them. You should anticipate potential threats to your business and how you will overcome them. Here are some examples:
- Loss of Sales: Loss of a key client or overestimating demand could result in a loss of sales. You should plan to be able to maintain liquidity for a period of at least 12 months. Additionally, plan to actively market to a targeted customer base using some strategic marketing methods such as improving SEO, focused emails, content marketing etc.
- Catastrophic disaster: A tornado, flood or fire could wreak havoc on a business You should plan to maintain a level of business insurance that would allow you to recover from an unplanned disaster.
- Inadequate or untimely financing: Having sufficient capital to run the business is essential. When internal own cash flow is not enough, most businesses will have to turn to financing arrangements with lenders or factoring agencies. Not understanding the costs involved in borrowing, using the wrong type of financing or borrowing too much or not enough can drive a company out of business.
- Product obsolescence: How will you keep ahead of technical changes or advances that could render your product obsolete? Trend is your friend. Planning on methods to rapidly align or adjust your product or service to changing or emerging trend can give your business a competitive advantage.
- Loss of a key employee: People are a company’s greatest asset. How you plan to pay your employees, the benefits you will offer, and the incentives you will provide for outstanding performance can go a long way in keeping your best employees. Not all incentives have to be financial to motivate and encourage employees.
Investing the time and energy in developing a comprehensive business plan that includes mitigating the risks of failure gives you more credibility and provides a more effective blueprint for your business’ success.
Business & Finance Articles on Business 2 Community(33)
