December calendars were packed with holidays and activities. In the business world, it’s the month that closes many fiscal years. But December was also Write a Business Plan month. Don’t scoff. For those starting a new business venture in 2012, or already in business but haven’t updated their business plans recently—it’s not too late. It’s time to get busy.
So why does a small business or new start-up require anything more than a great idea and the owner’s dedicated hard work? Because running a business—large or small—demands a huge pre-planning effort. It also requires awareness of many business fundamentals that may fall outside the owner’s expertise. The details of business planning can make or break a start-up: Financing, budgeting, insurance, cash flow, taxes, payroll, inventory, applicable laws and regulations, pricing, recordkeeping, marketing. Business owners don’t get to pick and choose. To be successful, an owner must actively manage all these important matters.
According to Nolo.com, the number of women-owned small businesses is growing about twice as fast as the national average for all start-ups. No business is too small or too large to forego a business plan. Every business needs to be based on a solid idea, aimed at a profitable market, have solid systems in place, and market itself effectively. Just as important, dozens of legal and bureaucratic rules apply.
Starting and operating a small business is hard work. Staying in business can be even more difficult. According to the U.S. Department of Commerce and the Bureau of Labor Statistics, seven out of ten new businesses survive at least two years; half survive at least five years; a third survive at least ten years; and only a quarter will survive for fifteen years or longer. And the top reasons for business failure all point to the need for a solid business plan. Although there’s plenty to cheer about when it all goes right, there is little room for error and forgiveness when an entrepreneurial business doesn’t work out.
In brief, here are a few of the primary reasons new businesses fail, according to Jay Goltz of The New York Times:
The math just doesn’t work
If you can’t make a profit, pay your bills and your taxes, and eventually pay yourself, then it’s not a business, it’s a hobby
Recordkeeping is required for all businesses. If you think you can skip this requirement then you aren’t entrepreneurial material lack of a cash cushion – this is one of the biggest mistakes entrepreneurs make; fantasizing about how much money they’re going to make and how fast they’ll make it. It’s critical to research and accurately estimate no only what your sales will be, but exactly how much money will be required to operate you business during an entire year.
No business should begin unless you have at least a year’s worth of funds to not just open your doors, but pay all the bills and taxes and payroll, buy inventory, and support yourself for at least one full year.
Best example: a great marketing plan leads to strong sales but the owner can’t make and deliver product in a reasonable time period.
Inability to management people, manage money, manage inventory, produce and deliver a product consistently and reliably, do whatever is required to walk the walk of a professional business.
Earlier this year, Mr. Goltz wrote: “In life you might have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you. And that’s why businesses fail.”