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    The U.S. Small Business Administration statistics indicate that half of all small businesses will fail in the first five years of operation. Other studies, like one completed by Bloomberg, indicate an even higher rate of failure with eight out of ten businesses failing within the first 18 months of startup. An entrepreneur may have a solid vision, excellent products and services, and a true desire to succeed, but they are not enough. The number one reason enterprises fail is due to insufficient capital to maintain operations before profitability or to manage rapid growth in the early years of operation. Other reasons include inability to compete, lack of management and marketing experience, poor location, lack of staff with needed skills, poor market knowledge, and poor financial planning.

    This information is not intended to discourage entrepreneurship, but it is meant to point out that having good intentions is not enough. One of the primary purposes of the business plan is to walk the entrepreneur through each element of the enterprise to ensure adequate thought is given to products and services, operations, marketing, staffing, management, financial planning, legal structure, and capital investments.

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    Paying attention to the following specifics can make the difference between long-term success and short-term failure.

    • Put into words what the business is all about and what differentiates it from the competition
    • Describe the product or service, including details on the product life cycle, components, patents or copyrights, materials and supplies, etc.
    • Do a thorough market analysis and identify the market gap the products and/or services will fill; complete in-depth research on the market, competition, and industry
    • Explain the strategy for reaching the market gap
    • Create the organizational structure, explaining each person’s title and role and verifying all critical functions are covered; describe the backgrounds and expertise of key staff
    • Chose the best legal structure, typically a sole proprietorship, partnership, or corporate form to limit liability
    • Prepare a marketing and sales plan – describe strategies for market penetration, creating distribution channels, developing customer communication and customer service channels, and reaching sales goals

    Since capital and financial shortages are often the main reason small enterprises fail in the first few years after startup, the funding request needs especially careful attention. Financial projections reflect what the owner expects in terms of sales and forecasts expenses, building in planned growth. If the intent is to find investors, the forecasts will need to project five years into the future. The projections influence the funding requests because the goal is to get enough capital to enable the business to grow as its customer base grows. A sure way to fail is to have a cash flow problem, fail to maintain adequate inventories, and be put in a position where customer orders cannot be filled.

    OGS Capital has worked with many entrepreneurs who have a vision and a product but no expertise in developing a quality business plan, particularly one able to attract investors or support loan requests. Having big plans is good, but having a quality business plan for the small business is much better.

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