What Your Business Plan May Be Missing
I recently came across a good article in Entrepreneur by Jayson Demers titled 7 Flaws in Your Business Plan You Need to Fix. I agree with most of them because I see them in my clients’ financial projections. The first one pertains to cash flow. Demers states:
Technically, a business can be “profitable” on paper, but still have cash flow issues; imagine, for example, a scenario in which the bills are piling up and your customers aren’t paying their invoices on time.
This is the reality, customers always pay slower than you anticipate while you have very little flexibility in how you pay your vendors and employees. I have my clients focus on the total cash cycle (accounts receivable days, plus inventory days minus days of payables outstanding) with the emphasis on conservatism. With that information in hand, you get a much better handle on debt needs.
Demers then points out that business plans are not specific enough:
When setting goals, describing scenarios, or making long-term models, you need to get specific. Most new business owners skip the details in favor of vague descriptors, like “significant growth over the first few years,” instead of “40 percent increase in sales during year one, and 30 percent in year two.”
Again, we try to get our clients to focus on their market and determine how to segment their market into manageable components. Then they can make assumptions about how they would reach those segments and determine how potential customers might convert to actual customers. That provides the assumptions around volume which in import and leads the most important assumptions–price and cost. With that information, we can generate solid forecasts for gross profit.
The final flaw is a disorganized plan:
Remember, you aren’t the only one who’s going to read your business plan. Investors, partners, and even new team members will be reviewing this before they come to their final decisions. If your work is sloppily written or your sections are improperly organized, readers will be left with a bad impression (even if your idea, in theory, is sound).
This is simple to remedy given all the tools that are available online. SCORE is a good resource for business planning templates at this link. If more complex Excel models are needed for revenue planning ,cash flow projections and the like, contact Profitwyse. We have models for many different industries.
Great article by Demers on some of the pitfalls of business plans. If you’d like to avoid many of them, contact Profitwyse today.