There are many reasons why a business owner or manager prepares a business plan. However, for most business owners there only is one reason—to get needed capital for their company’s start-up, survival or expansion. Unfortunately, many business owners never receive funding because their business plan falls short of capital sources’ expectations for their business and their business plan. By avoiding the following shortfalls, you can help ensure that your business plan thoroughly prepared and ready to stand the challenges posed by the investment community.
You Don't Know Your Product Or Service
You know what you sell; however, has your business plan clearly and concisely described those products and services? Too many business plan writers make the incorrect assumption that the reader is as familiar with their business as they may be. Unfortunately, this assumption leads to a quick and final no from lenders and investors. Instead, define and describe your product for someone who knows nothing about your industry. When describing a service such as indoor tanning, make sure to explain to the investor in clear and understandable text, instead of industry-related language. Be sure also to include not only the features of your offering, but also the benefits. Tell the reader what need it fills, why it is better, faster, cheaper or how it can improve their life.
You Don't Understand Your Target Market
Understanding your target market can be the difference between success and failure. This understanding helps you to further develop the benefits important to your clients, enables you to focus your marketing efforts to reach the right audience and allows you to determine the most cost-effective channel to get your product in the hands of paying customers. Define your customer in as much detail as possible, including demographic traits as well as more subjective terms such as lifestyle and personality type. Preparing and implementing a primary research technique—such as a survey or focus group—can help you gain a deeper understanding of your customer and help tailor your business to meet their specific needs.
You Don't Know Your Competitors
A business plan lacking a comprehensive competitive analysis is destined for the out box of most investors. In order to avoid this fate, your business plan should include a thorough analysis of your competition—direct and indirect. Experienced capital sources know that competition exists; however, they also know that competitive forces can have a very positive effect on a company’s attitude and performance. Remember, Coke has Pepsi and Nike has Reebok. Be sure your business plan identifies who your competitors are, what they sell, what market share they hold and what strengths and weaknesses they have. Also, by identifying that competitors exist in the marketplace, you have proven that a market truly does exist for your type of business.
You Don't Have Support
No one ever said running a company was easy and with the lack of hours in a day, a well-rounded team of people often is critical to the success of a company. Most capital sources view one-person operations as limited in terms of time, experience and core business skills necessary to launch and grow a serious business. They also expect a team of professionals that are highly competent in each business function (marketing, sales, operations, finance, etc.). Once you have assembled your team, be sure to provide your reader a thorough description of the background and job responsibility of your team as well as a discussion of your board of directors, board of advisors and key consultants.
You Don't Have An Exit Strategy
Business plans are excellent tools for company owners to plan a business or to raise capital. However, when seeking capital do not forget that an investor’s commitment of capital hinges upon their ability to recoup their initial investment and a healthy profit. The lack of a solid and realistic exit strategy demonstrating how investors can accomplish this goal can immediately turn off many sources of capital.
When deciding upon an exit strategy, buy sure to take into account your particular industry, business life cycle, competitive environment and management needs. It also is important to consider your personal and financial goals and how they relate to the future of your business.
