Quality checks for your business plan

This article was published as the Sanlam Business Market, Business Tips: December 2013 newsletter. The Sanlam Business Tips is an incredibly useful and free resource for entrepreneurs. If you have not yet subscribed you should.

Many business plans lead businesses into disastrous situations

We all know we should check our cars before travelling. Equally important is the need to check your business plan for faults and potential failures before making it the core of your business, or using it to ask for finance. Here is a 6 point check:

• Can YOU execute? Failure to convince financiers of this aspect is probably the number one reason for rejection. More critically, it is probably the number one reason for early start up failure. Points to check: Do you have enough knowledge to run the business? The entrepreneur of a business which markets services needs to understand marketing as well as the service. Do you have any experience in this field? Hobbies are often a help in this regard, for instance enthusiastic cooks setting up catering companies. Do you have the time to execute the planned actions, and will your family support that? Entrepreneurship is not for the faint hearted, there will be many late nights and early mornings. Can you take risk? If you are uncomfortable with being daring at times you should plan for safer businesses. Can you lead? You will need to tell people what to do and learn to make uncomfortable, even agonising decisions.

• Have you done a sensibility check? Most business plans I see have glaring flaws in them. For instance listing all the grand marketing promotions and advertising planned and then providing a marketing budget of a fraction of that cost. Or not thinking about the capacity of the organisation to handle the projected customers. Are there enough tables in a restaurant to serve the projected number of meals? Can enough sales calls be made to get to the sales forecast? Will the cash flow support the raw material purchases needed? Check the whole plan with a cynical eye.

• Is there really a reason for customers to buy from you? Perhaps the second biggest reason for business failure. Take a hard look and answer the question: “Why would this business attract customers away from the companies they now buy from”? If there are insufficient reasons to convince an outsider then the plan is likely to lead to failure. Think again or find a different business.

• Are the sales projections realistic? Entrepreneurs are optimists by nature, but forecasts should always be conservative. Check issues like sales per customer, the proportion of new business to existing customers and the expected win / loss ratio. Cut out the optimism, be realistic or pessimistic. Do not build a plan which is reliant on a marketing promotional plan which has never been tried before.

• Have the key success factors and major risks been identified? Your plan should identify the four or five factors that must be achieved for the plan to succeed. Sales running to forecast is usually one of those, but others may be customer satisfaction levels, quality standards, productivity, cash flow or others. These must be monitored frequently, at least once per week, preferably in a dashboard. Risks are equally important. Identify the four or five biggest risks to the success of the plan, and have mitigation plans prepared and monitor frequently.

• Do you know what your competitors are doing? You must be able to position your company against its competitors with the differences clear in your mind. The test is that you are able to show why the customer why they should buy from you while talking about the competitor with respect.

Now that you have done your safety checks to your car and business plan you can go away on holiday in a relaxed frame of mind. Enjoy!

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