Does your business plan include a section on planning for failure? If not, why not?
Most businesses fail. And in many cases businesses fail unexpectedly leaving the business owner stunned and at loss about what to do. In other cases, business owners continually feed cash and everything that they have into a failing business, getting in so deep that when they finally give up they have taken a big loss. And then they are stunned by what they have to do to unwind the legal parts of their business.
And then if the business grows, often the business owner is not sure what to do with the growling monster that wants constant attention.
A business plan should include exit strategies.
The first business plan exit strategy should postulate what you are going to do if the darned thing actually succeeds and you are trapped with having to work seven days a week to keep up with the demand. And your business plan exit strategy should give you a list of target buyers for your business so that you can sell it at a profit, unless, of course, you want to run it from your home computer for the rest of your life until you decide to shut it down and throw away all the good will and equity that you have built.
At the same time your business plan should fully analyze what will happen to you when your business fails. Remember that you have at least, if not more than, a 90 percent chance of failing. You have to plan to fail.
And your business plan has to define failure. Failure may simply mean that your work effort has not met your goals. You may be making a profit, but your time and effort is not worth much more than the money you are earning from the project. Define the benchmark and live with it. Make the decision before you start up.
Also define how much money you will be able to invest. Use that sum in your financial projections. If you do not have enough to make the business self sustaining, using worst case assumptions, stop. Look at a different business model and run another plan.
Too many people do their financial projections based on their passionate belief that they can sell a product. And to satisfy their own preconceived notions they make their financial projections based on best case assumptions. They never assume that the economy may sour and consumer purchasing power will decline. They never assume that the exchange rate for the dollar may affect the price of products that they want to import. So when it happens, the financial projections upon which their business plans are based are simply wrong.
To protect yourself, make your financial projections more realistic. In all subject your business plan to a reality check. Discuss it with one or more people and listen to their ideas. Let them give you their opinions and criticism. And then consider factoring them into your plan.
If you don't have a business plan, it is the end for you now. Of course it is not to late to step back and write a plan, but if you have no plan and you are running a business, you are beyond the beginning of the end. The end is likely nigh.
So whether you read this before you start of before it is too late, write out your exit strategy now and then fill in the numbers in your financial plan. Your numbers will tell you which exit strategy is the most likely one that you will use. If the numbers tell you that you will fail, listen to them. If they tell you that you will succeed, go for it.
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About the Author
Copyright 2005 - Gary Granai is the Director of the Poland Chamber, Inc , a small business trade chamber that assists small companies with drop shipping. He is also the author of the Drop Ship Guide. You can see a book review of it when you click here.