Wednesday 3 July 2013

The TOP TWELVE Business Planning Mistakes



Business planning is often talked about as a challenging process to go through either to start a new business or as the essential process of taking ownership of an existing business. Many business plans fail to achieve their objective, not because they represent a bad idea but because they fall into classic business planning pitfalls or fall over blinding obvious credibility cliffs.

The business-planning process is in itself a very worthwhile pursuit, while they take a lot of effort and resources they are an excellent way for business owners to undergo. A business plan's primary purpose is to convey an idea with a view to achieving a specific goal, most typically in securing funding. 

Business planning mistakes and how to avoid them, by Richard Gourlay independent NED, busienss consultant and business advisor.



Always remember that a business plan needs to be tailored to its target audience, if you have different audiences you will need to be able to flex your plan to that audiences specific needs. That means shaping it, edit it and amending it to achieve your objective. 

If you would like to know how to avoid these top ten pitfalls and credibility cliff edges then click on the subject titles which are links at any time to see my step-by-step videos on how to avoid these pitfalls and credibility cliff edges. I have over the last 30 years been involved with hundreds of business developing business strategy, reviewing business plans and advising clients on how to implement a business plan. Below are my top 12 business planning mistakes business owners most often make, along with my thoughts on how to avoid them happening. 

Here's the top twelve business planning mistakes I come across:- 

1. Lack of Viable Opportunity

Every business plan needs to describe the opportunity in detail. It must also detail how that opportunity can, and will by this plan, be exploited profitably, effectively and successfully.  A good business plan can visualise the opportunity and articulate the company’s ability to reach a viable opportunity, this is a credibility cliff.

Tomorrow is a difficult place to plan for, but being able to identify and make that opportunity viable is the most critical test any business plan has. It is also the most common reason they fail. Your executive summary and the wider plan describes the viability of the opportunity in terms such as:-

  1. What is the problem which people  will pay to have solved?
  2. Does your solution solve this issue for a specific target market?
  3. Why would someone buy your solution over someone else's?
  4. Why are the benefits of your offering so compelling?
  5. Can you reach that target market with a compelling message quickly and directly?

2. Unbelievable / Unsupported Financial Numbers

Where any assessment of a business starts and often finishes is at the numbers, specifically on the projected Income Statement or Profit & Loss. Projections are just that, but they are vital and must be based upon clearly stated assumptions. Many business plans are written with numbers which just do not stand up even to a first glance. 

Dream numbers: in overestimating income and understating costs. 

Your numbers have to make sense and be realistic, if you are a new start-up then they must grow rationally from nothing, but costs will be incurred before turnover is generated, these need to be realised and recognised in your financials.

The financials must also make sense and be presented in a format which presents a clear case for the investment and the return you will deliver. Ultimately, they need to be credible, defensible and consistent. 


3. No Accessible Route(s) to Market

All opportunities are only prospective ones without evidence that the target market can be accessed profitably, this is a big cliff to fall over.

Entrepreneurs are inherently product focused, concentrating their energies on ‘the winning idea’ to the exclusion of many other important elements such as how they intend to access their customer base, a classic cliff edge for any plan.

"Built and they will come" is a great dream but a poor plan. 

A business plan must include a comprehensive, credible and costed analysis of how the company is going to access their target market in a cost effective manner. 

For that to happen your plan needs to really understand the target customers, their needs, and purchasing priorities. Turning historical data into information and drawing knowledge from it ascertain insight into their future purchasing habits. Only then can you demonstrate cost effective routes to market within a business plan.

4. Executive Summaries Which Aren't

Somewhere between a pitfall and a cliff edge, is the failure of the Executive Summary, to be either a summary or aimed at executives. The only part of any plan that will certainly be read is the Executive Summary and yet they rarely provide an effective summary of the business plan. A good plan highlights the key proposition of the plan and sells the proposal. 

Too many Executive Summaries either throw everything down in a jumbled mess, making them pages long and randomly pulling facts together, or they are so bland they say nothing!  

What's a good Executive Summary, one that states the proposition clearly and succinctly, a page is sufficient for any plan. The Executive Summary should clearly explain the whole picture including what investment is required and what it will deliver. The point of an Executive Summary is to inform the executives, so many it punchy, outcome focused and only ever write it at the end.  
     

5. Over Estimating Turnover 

Another associated key element of the plan which relates to this element is the estimations of projected turnover. 

While every business plan talks in positive terms (hopefully), the obvious and persistent danger is that the innate optimism of all entrepreneurs and their tendency to exaggerate every business opportunity. 

This pitfall is most easily managed using a realistic method for estimating income is to calculate the number of customers the business intends to capture and the average revenues. These two averaged inputs are easier to calculate and also to justify within a business plan.

6. Absence of Clear Objectives 

I could have put this pitfall at number one very easily. What is the main purpose of the plan?

If the plan's objective is to seek funding then it is vitally important to clearly describe the investment opportunity. While the plan describes the concept in detail, it must also address the primary purpose of the plan. So many plans fail to make it explicitly clear what the company's needs to be successful or what the investment will mean to the company.

A good business plan answers:

  • Why investors should investing in this business rather than anywhere else?
  • When will they recoup their initial investment and how and when it can be realised?
  • What is their expected return on investment?
  • How the company has managed all aspects of risk? 
  • Is the investment merely cash or do they need to bring other assets such as expertise to the table?

If you can answer these key questions, the intended audience will feel comfortable and be able to recognise that they fit the brief.

7. Non-Existent Cashflow Management

Particularly relevant to a new business, this is often an invisible cliff edge which business plans fall over on, is the ability of the business to articulate the differences between cash and profit. Running out of cash is the highest risk any new business or re-engineered business faces.

Good, positive, and conservative cash flow management is vital when businesses pursue investment opportunities where there are significant cash flows out, in advance of the cash flows coming in. This is the classic business plan cliff, which sends potential investors running.

If a business plan’s financial model is based upon selling on credit, then they receive the cash in the future, but need cask to pay expenses before that income hits their account, then they have a cashflow risk. This outflow of cash is the single biggest reason companies fail, its not margin, its rarely the product, it is invariably that they run out of cash.     

8. Non existent Management Teams

Throwing a few CV's into a business plan does not create a delivery team. Likewise a generic organisational chart with missing pieces and TBC (To Be Confirmed) is not going to inspire confidence  with investors to part with their cash.

Entrepreneurs can often sell an idea but they do not always inspire they can select a balanced team of people with the right skill mix, from the financial management to key leadership roles and the right operational team to deliver your ambitious plan.

Having a structured management team with operational structures is essential for success. Track records matter, as much as having clear roles and responsibilities laid out in delivering the operational plan which underpins the business plan.  

9. Poor Evidence of Demand

A significant area of concern when planning is justifying the sales forecast or demand levels for a product or service. This breaks down into the two main elements used in forecasting: the use of historical facts and the dependency of subjective assessment.

Sales forecasting, is the vital tool to identify the basis of all projected revenue figures that can be considered credible in the wider context of the plan. Unless there is verifiable demand for the idea, the risks grow out of all proportion, particularly if the initial start-up or investment costs are high.

Minimising risk in a business plan is all about gaining an understanding the potential demand and how the company will with this plan create or drive that demand rather than concentrate on ‘the product or the idea’. This classic cliff edge is a silent killer for investors, they don't believe in it.


10. Gaping Inconsistencies

An effective business plan needs to be consistent throughout as all the various strands are brought together into one single entity, the plan. It is pitfall which entrepreneurs gloss over, but investors relentlessly prod before committing to any plan.

If there are multiple authors of the plan the risks of inconsistencies will exponentially increase. Extrapolating data can also cause problems, using research data and then jumping from possible market size to sales potential and then sales forecast are classic pitfalls which need to be thought through. 

Presenters of the plan must have a simple narrative that runs through their plan, using key facts and staying ‘on script’ so as to ensure that a cohesive story is communicated. The numbers must also be consistent with the broader content so that there are no contradictions between them.

11. Not Appreciating the Competition 

There is always competition. Yet the number of times the phrase “there are  no competitors” appears in plans is considerable.

It does not matter how unique the proposition is there will also be some other business competing for people’s money. While there may not be a direct competitor it will certainly be a transfer investment that customers will be making. The business plan must recognise where the customers invest is coming from. If competitors are not identified in a business plan then the only credible assessment is that the company has not been diligent enough in its research.

Also remember that no company lives in a vacuum, as soon as you launch (or before) the marketplace will change. What will the competitive landscape look like in a few days, weeks, months or years? Can you create or establish significant barriers to entry, or is it likely that a successful market entry will be followed by better-placed competitors with greater resources, etc


12. Throwing Your Plan Out Too Soon

You never get a second chance to make a great first impression. Your plan needs to be right the first time and the content needs to be accurate, clear, concise and correct.

More often than not business plans need to be completed by a certain date and hence the final stages can be rushed, a classic pitfall.

Consequently, in many instances the final output does not do justice to the plan. Attention to detail at the end is vital, so ensure you have a completed plan with references and formatted correctly. Also ensure the content of the plan has been edited down to a digestible size, use appendices for details.

Get someone removed from the process to proof the plan. If a presentation is part of the process, it should reflect the Executive Summary.


In Summary

Business plans by definition have a purpose of communicating a course of action so make sure they do that primary role. Support inevitably means resources with the primary aim of the plan often being to secure financial investment. Explain the invest what it will be used for and how it will be protected from these classic pitfalls and cliff edges.

Writing a successful business plan is all about preparation, about being as thorough in your research and planning as is possible. By avoiding the cliff edges and pitfalls above, the chances of the plan objectives being met increase substantially.

Read more or get in touch to learn how Richard Gourlay can support your business growth. Or read more about strategic planning and business planning in my blog.


Friday 31 May 2013

Business Startups: How to Start your Business Successfully


Business start-up advice by Richard Gourlay, how to develop your business successfully.

Starting Up A Business: You Need a Business Plan 

Starting a business is an exciting and yet daunting time for everyone, from the seasoned veteran to the first time start-up. Starting up a new venture in any field is one of the most frightening steps anyone can take. Stepping out from the known and safety of being part of another community to stand alone with your idea sounds exciting and thrills people, but also creates a mountain of new and often insurmountable challenges.  
  

The excitement of starting a new business can be quickly matched (and outshone) by the size of the daunting challenge you have set yourself. Where do you start in turning your idea into a business? For many it is talking it through with friends and family, seeing if it has legs, if it is a runner, trying to find the next step in turning the idea into a business.     



Hidden Challenges Facing All Entrepreneur

The next stage for many is to try to write down a plan of what they are trying to launch. This is where most people struggle, what to plan and how to plan what you are doing. How to turn your embryonic idea into a fully sized business is one of the hidden challenges facing every entrepreneur.


For many creating a business plan, is too big a challenge, re-defining it as a pointless exercise, or more realistic something they know they need to do, but want to postpone having to do it until the last moment, or later. Quite often planning their business is something entrepreneurs want to or try to delegate to other people. They want to keep the model flexible, or often in their head, I am working on it are other phrases I come across.


How to start your business successfully by Richard Gourlay, NED, consultant and advisor, Dumfries, Scotland, UK

Putting All the Pieces Together

Yet to take any idea from embryonic idea to a recognizable business model, requires an investment in planning all the details of your business. Not just focusing on the core product or service, the exciting concept, but functional aspects of how the business will operate, from where and how, what operations have to be undertaken and by whom.   

Then a business needs to answer the biggest challenge, where will the customers come from and how. This key area is one, which entrepreneurs struggle to define publicly and honestly, relying on the old adage “build it and they will come.” But turning an idea into a successful business requires more than hope, it requires a clear plan, based upon a defined winning strategy driving a business model which makes sense and explains why it will succeed.

Defining The Optimum Solution  

The first step many successful entrepreneurs undertake is to review their idea and build their strategic plan, to take their idea from embryonic idea to a fully formed business model. From understanding your market and the size and scale of opportunity, to working out where to position yourself and what needs to happen to create interest in what you are offering and how you need to respond to it.

Developing a strategic perspective is a vital first stage in developing an agile and responsive business, by defining your strategic plan enables entrepreneurs to fully assess the whole business model, evaluating all aspects of your business and giving you all the ingredients for a business plan.   



Develop your strategic plan to optimise your start-up success, by Richard Gourlay

Take Some Action

However you decide to start your business, do look for support. Run your idea past experienced people in bringing businesses to market, look at answering the difficult questions early, while optimism is vital, so is reality as is persistence.
 
If you are looking to develop your business model then look at developing your strategic plan for your business then why not look at my book Strategy: The Leader's Role by Richard Gourlay which will help you develop your strategic plan for your business.  



Tuesday 21 May 2013

How to Find Growth: Business Planning Mentoring

Richard Gourlay, Business advisor, business consultant, Independent NED.

 

The Key Role of Leader: Growth

The key role of every leader in any organisation is to determine the direction of where they are leading their organisation. A leaders success or failure is determined by what growth they achieve. You are leading yourself, your people, your shareholders, and your customers to where you want to go. All successful growth strategies set and work towards goals.

Leaders can often make sound and good decisions about things they can see and clearly understand. Often leaders, directors and owners have advice and support systems built into their day to day decision making, but when planning tomorrow's growth it is not always so easy. Many leaders struggle with looking and making decisions beyond the known horizon. It is hard to see beyond the tangible, beyond the concrete, beyond the known.

This is why I have created my Business planning Toolkit, built upon my 20 years of experience, to help you to learn how to successfully look and find growth opportunities and turn them into growth. My business planning toolkit will enable you to Take the guess work out of your business success.      

Leader's role is to find and deliver business growth


Leaders Need To Plan For Growth.

Leadership success is always about delivering tangible growth, where have you taken your business and why. Knowing that you need to find growth is one thing, but knowing how to find the right direction to take, where to look and find real growth or answer the hidden real challenge of being able to assess which growth options to follow and which to disregard is quite another. 

Here's a great example of getting it wrong. The CEO of LA Gear grew his company from $11 million to $820 million in sales in just four years by focusing on unique, fashionable shoes that were expertly marketed.

Then chasing three huge opportunities they killed the company stone dead. To keep growth coming LA Gear sold excess product at deep discounts which devalued the brand, invested heavily into basketball shoes, not their core market and offered low-end shoes at Wal-Mart.

How To Find Growth 

There can therefore be good growth and bad growth, how do you know which one to nail your colours to as a leader. Growth opportunities need to be assessed and verified. They need to be understood as part of a long term strategy, not a quick tactical grab which helped to end LA Gear.

So leaders need to develop clear strategies which support and drive long-term brand value, and not grab at passing opportunities just because they have some big short-term numbers attached to them.  Assessing where you are going against long-term key performance measures is one key way which all successful major companies use, the balanced scorecard.


Finding growth in business is the leaders role.


Putting All The Steps Together      

These are just some of the key steps which take your business from a cold start to a roaring firebrand, going where you want to take your business. I've put together my Business Planning Mentoring to Take the guess work out of your business success that takes you step-by-step through the simple steps of how successful business leaders plan their business.  

Looking and reaching for growth in business by Richard Gourlay leadership consultant.

How to take the guess work out of your success

This step-by-step process that takes you through each step that builds logically and effectively to your effective growth plan. Short videos take you effectively through each step, with plain English explanations supported by a thorough workbook with all the templates you need to take the guess work out of your business success. From finding growth to setting goals and monitoring your progress towards them.

Here's 5 benefits from following my Business Planning Mentoring Programme to find your growth:- 

  1. Weekly and monthly support programmes - planned around your precise needs. 
  2. Simple steps - which move you forward one step at a time, see the results happening
  3. Robust processes used by successful leaders 
  4. Workbooks and support action plan - fully explained with all templates to support your development  
  5. My guidance to show you each step with key tips to avoid the pitfalls.
See the video which explains more, click: How to take the guess work out of your business success.

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