Business Plan Purpose

Business Plans Help Prevent Key Startup Mistakes

Written by Chris Martin for Gaebler Ventures

Assembling an accurate and thorough business plan is an excellent way to avoid mistakes during your business's early months and years. Here are some of the ways that having a solid business plan can help you do that.

If you think that putting together a viable, profitable business plan is easy, then your business probably won't pass muster once it enters the marketplace.

Perhaps you have seen (or maybe even created) some business plans which appear to promise the moon: lucrative sales projections, sky-high profits, and minimal costs. All too often, business plans which were produced while looking through rose-colored glasses do not play out as advertised, and the business winds up failing. Moreover, if you submit such a business plan to a financial institution or investor group, it will likely be returned unfunded.

The best way to avoid this scenario is to spend more time on your business plan before promoting or launching the business itself. There are several mistakes you can avoid simply by doing the heavy lifting during the business plan formulation process.

You are way too optimistic.

Let's face it: most entrepreneurs are characterized by a burning passion and a can-do attitude. While that's often a good thing, it can sometimes lead to projections that are not grounded in reality. So instead of sprinkling numbers on a page in the hopes of wowing an investor, you should take the time to plot real-world outcomes based on reachable revenue goals. Not only will this help you view your enterprise more objectively, but it will also increase your understanding about the drivers of your business that will ultimately make it successful.

Before your company can be profitable, it must reach critical mass.

This is especially true with business models that are membership based. Let's use an online dating service as an example. The idea is to acquire a large number of customers who pay a regular fee to use your service. The more customers you have, the higher your profits will be.

Here's the problem: you won't be profitable until you reach a certain subscription level. And until there are plenty of members (i.e., potential dates) using the site, it will be difficult to attract those paying customers which could help you become profitable.

Therefore, the prudent approach would be to allow for some time and investment before worrying about getting out of the red. This may require some initial sacrifices like offering discounts to certain groups or allowing people to try the service for free for a short time. Even if you may not be planning to launch the next eHarmony, you should still adopt this basic mentality in your company's early stages.

You start your business without a reseller channel.

If you are selling a product, then this especially applies to you. It may sound like a great idea to launch your own e-commerce site or storefront, but it will take time for advertising, marketing, and word-of-mouth to bring customers to your door.

Before throwing open your doors for business, consider finding and securing a reseller channel. This reseller can be a third-party broker or wholesaler, or it can be a discount store or web portal which can add your product line to its slate of offerings. This can allow you to "hedge your bets" on your revenue-producing channels instead of relying on a single conduit for all of your cashflow. Finding a reseller can help your business survive the slow times instead of having to succumb to market forces which may sink your business.

Many times, starting a successful business isn't rocket science; it's just thorough preparation. And this preparation starts with a well-constructed business plan. Putting in the extra time before your business opens its doors will almost always pay off in the long run.

Chris Martin has been a professional writer for the last seven years. He is interested in franchises and equity acquisition.

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