Why Business Plans Fail

Practice experience over the past 30 years has demonstrated again and again why business plans fail.  The calls are always the same.  The promoter is completely frustrated as to why their business plan has failed and they keep getting rejection for bank financing or third-party investor funding of their project or business.  Business plans fail because they fail to address the only two questions that count – opportunity validation and risk management capacity.  The promoter has a fundamental conflict-of-interest in the funding process, so anything they put out for consumption that is not backed up with independent, third-party evidence is not only considered to be irrelevant, but also be considered grounds for immediate rejection because the promoter is automatically assumed to be potentially dishonest.

If you are continuing to see rejections then here follows the most common reasons why business plans fail:

  1. Template Plans.  Your business is not a template and neither is your plan.  Template plans demonstrate a lack of interest in the business planning processes and that means you go to the bottom of the stack or straight to the circular file.
  2. Hyperbole.  Unsustainable claims are automatic grounds for rejection.  If you are stating things like, “best company in town”, “greatest”, “most wonderful” or similar subjective statements as facts you are going to be automatically dismissed.
  3. Construction Errors.  Believe it or not, grammar and spelling counts in business planning and business operations.  You would be surprised how many business plans we see that are replete with these problems that are easily avoidable.  Prior to submission of your plan, please have someone who has good spelling and grammatical skills review and revise your proposal.  If you don’t, then be prepared business plan of operationsto be part of the 4 out of 5 companies that fail to obtain capital.
  4. Loss Mitigation.  This is the silent killer of business financing proposals.  Your business plan must provide a summary of your execution risk management program documentation and due diligence activities.  Your plan must answer the question of what would likely happen if you were removed from the business at some point in the future and how you will handle challenges as they arise.  This must include regulatory risk management, liquidity risk management, asset obsolescence risk management, technology risk management and investment fraud risk management.  You must provide documentation to back up your program in the form of a complete business plan of operations and list the operations plan as one of the supporting due diligence documents.
  5. Third-Party Validation.  Your claims are all considered to be suspect so you must business-plan-capital-financingdemonstrate third-party credibility at all levels of your plan whenever and wherever you can.  The lack of third-party validation of market opportunity, financial feasibility, capital costs, operations and risk management are critical to getting past the junior file clerk who will be the first to read your plan.
  6. Financial Elements.  You must present the balance sheet, sources & uses of funds, and income statement at a minimum and they have to be in GAAP format.  You need to have the component revenue, department budgets, non-operating expense schedules and supporting notes, assumptions and basis of calculations for at least a 5-year period (month-by-month and annually) available and annotated in your business plan.
  7. Market Elements.  You must present a summary of the market feasibility study findings, means and methods used to support the proposed business opportunity.  The case has to be clear and convincing based upon the independently surveyed market evidence with the resulting business plan and anticipated investment opportunity built directly upon its foundation of findings and recommendations.  Deviation from these findings is grounds for immediate rejection.

There is a lot more to this process than paying for some software or a template and then making the even bigger mistake of sending out the proposal to as many lenders or investors you can think of.  Talk to an INVIZEN consultant today at 832.663.9634 on how you can maximize your odds of a successful funding outcome.