One of the most common reasons for businesses failing is failure to write a business plan. When an entrepreneur fails to plan, the chances are good that even growth can lead to serious business problems. How can growth lead to problems? It’s not growth per se. It’s when growth is too rapid and the business is unable to meet demand that causes small business failure.
Business growth must be managed. You can accept a half million dollars of customer orders, but if you can’t meet the demand in production or delivery the business will quickly get a bad reputation when unable to deliver goods and services as promised. Growth should be carefully planned so that resources are always available.
The business plan can help company owners and management avoid the most common reasons for business failure. In fact, knowing the reasons and then addressing them one by one in relation to your own business can help you avoid the pitfalls a new business typically faces.
Top of the list of reasons for business failure is lack of experience. The business plan includes a section on business management for a very good reason. Investors will want to know if the management is qualified and experienced. Even if you aren’t looking for an investor, it’s still important to identify the skills and competencies of key personnel. If gap exists, you’ll know it’s necessary to bring other talent onboard.
Lack of capital is another reason for business failure. The financial analysis needs to address money needed now and for planned growth. The keyword is ‘planned’ because unplanned growth can cause inventory, cash and personnel shortages.
That brings us to one of the most important advantages of a business plan. The elements of a business plan are integrated. For example, investing too heavily in assets can lead to a cash shortage which leads to poor customer service and lack of operating funds. Lack of management experience can lead to poor decisions that lead to marketing mistakes. The integrated nature of the business plan is precisely what makes it so valuable as a planning tool. No one starts a business expecting it to fail. Knowing why businesses fail can help you avoid a business failure. Plan to succeed in the business plan.
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