If you don’t have a business plan, you have a plan to fail.
It’s true. Start-up entrepreneurs who plunge into their new enterprises without writing a formal business plan are far more likely to fail within the first year of their launch. The U.S. Bureau of Labor Statistics shows that 1 in 5 start-ups will shut their doors before a year is up. That increases to half of all new businesses failing within five years.
Experts agree that among the top four reasons these new companies fail are lack of capital and lack of planning by not creating a formal business plan. In cases where a company has plenty of cash, they can still crash without a proper plan.
There’s little excuse for not writing a solid, detailed, and well-designed business plan. It’s already highly defined art. One can even find business plan templates online that make it easy to plug in your numbers and information –- and then do some additional customizing to make it your own.
So, the first rule of writing a great business plan is: “Don’t recreate the wheel!” You can stand on the shoulders of giants and learn how other successful start-ups succeeded by looking at their business plans.
Second, in the financial projection portion of your business plan, take a conservative approach. For example, you might be tempted to forecast that your new firm will capture 50% of the local market by year’s end. Even if you have solid marketing data which strongly suggests this is true, it’s better to set your goal 10% or maybe 30%. It’s better to meet and beat your forecast than miss your mark in the eyes of investors.
Third, strive to keep your feet planted in the ground by being realistic in terms of time and availability of resources. Becoming overly optimistic about how quickly you can achieve a certain milestone is among the most common mistakes of first-time entrepreneurs.
A rule of thumb is to estimate that everything will take 15% longer than what you predict. That means 20 weeks is more like 23 weeks.
Finally, document carefully the reasons your business strategy will work. Is there a model of a similar business that you can point to? Have you mocked up a prototype?
Also, consider variables that may not apply to your situation and explain how you will overcome them. The latter is often called a contingency plan –- that defines what you will do in the event things go wrong.