Why do most business ideas fail?

If having a good idea was all it took to build a successful business, everyone would be the CEO of their own company by now. Unfortunately, for a business to succeed it needs good planning, cash flow and marketing, plus a little bit of luck. There’s always the chance a business idea won’t work out, but those who lay a solid foundation have the best chances of success.

Poor planning, and therefore poor cash flow is one of the biggest killers of a budding business idea. The businesses that succeed are the ones that have a solid plan that allows them to cover their costs throughout the whole of the financial year, regardless of fluctuations in income or expenses. They do this through careful planning and expense management, and also through their pricing structures.

For example, a company might offer monthly memberships or finance plans, so they have a steady inflow of cash every month. In addition, they might run seasonal marketing campaigns, offering deep discounts during the quietest months of the year so their main overheads are covered.

Successful entrepreneurs are attuned to the health of their business in terms of reputation, customer base, cash flow and growth potential. They recognize that, while a company’s balance sheet may appear healthy on any given day, medium-term fluctuations in income or expenses can have a significant impact on the company’s viability.

How to turn an idea into a business plan

That lightbulb moment—that realization of “I have a business idea”—was the introduction to the concept you can’t stop thinking about. Now it’s time to turn all that creativity into action by developing your business plan. The business plan is your manual for success, offering the details of your proposed business and available resources and establishing your business goals. Before moving on to the steps required to draft such a document and learn how to turn an idea into a business plan, here is a list of what it might include:

• Executive summary
• Business description
• Market analysis and strategy
• Marketing and sales plan
• Competitor analysis
• Management and organization description
• Products and services description
• Operational plan
• Financial projection and needs
• Appendices and exhibits

Having a solid business plan can affect all aspects of your proposed business. Take your time with this and give it the full attention it deserves. Extra work put in now will save you some mistakes as you get established. It’s also important to note that many parts of the business plan will be completed out of order.

1. Talk about your idea

Whether you bounce the idea off friends and family or hire a business consultant, you need a variety of opinions to form realistic expectations of your idea’s potential. This also opens the door to hearing suggestions about possible consumer markets you hadn’t considered and tapping into the experiences of others who may have already been where you are now.

2. Research the market

Identify your target market and engage with them. Find out what they are buying to help with the problem your product solves and what they are willing to spend on a solution. Find out what they do and don’t like about the products they’re currently using. Ask what influenced them to choose the products they did. Make note of any relevant competitors.

3. Write your product description

This is the easiest place to begin because you get the chance to describe the full concept of the idea you’ve been working on. Questions this section should answer:

• What does your product do?
• What problem does it solve?
• How does it work?
• What does it look like?
• What materials are used?
• How does it compare to the competition?
• Are there liability issues? If so, what actions have you taken?

Remember to write about your product as though you are selling it. Keep the information interesting and relevant. If you’ve consulted with an attorney about liability issues, include a summary of that interaction and set aside supporting documents for your appendices.

4. Work on your market analysis

Determine and research your ideal customers—those who would most likely purchase your product. This is your target market. Use your market research to develop the following:

• Market demographics (age, gender, income, etc.)
• Size of the target market
• How you will reach the market
• Purchasing motivations
• Purchase power
• Lead time to fulfill an order

Add market research supporting documents to your appendices.

5. Complete your competitive analysis

This is where you do some research into all the companies that sell similar or alternative products in your market that are meant to address the same problem. Take the time to visit their stores if they’re local or browse their websites if online. Identify the markets they serve and details on their products. Talk to their customers to learn about their experiences. When you write your analysis, focus on any market gaps your product fills or additional benefits your competitors don’t offer. Explain what will make you the preferred brand to consumers.

6. Draft your operational plan

The operational plan includes two parts: the stage of development and production process. For the stage of development, you’ll need to research:

• How your product will be produced
• Production risks
• Necessary industry association memberships
• Suppliers you intend to use along with backups in case they go down
• Quality control measures you’ll establish

The production process is a detailed snapshot of daily operations. The areas that should be addressed are:

• Days and hours of operation
• The physical location (address, description, appraisals, etc.)
• All equipment (descriptions, quantity needed, costs, etc.)
• Assets (descriptions and values)
• Materials
• Production (how long it takes, when it will start, possible delays)
• Inventory tracking systems
• Feasibility (how viable the product is and any research that backs it up)
• Product cost

Building leases, real estate appraisals, asset deeds and titles and any other supporting documents should be included in the appendices.

7. Lay out your management and organization plan

Describe the organizing structure (LLC, Inc., etc.) and list any partners or executives. Then provide detailed information about each member of your management team, including:

• Name
• Ownership percentage
• Active or silent partner
• Position
• Responsibilities
• Education
• Relevant experience or skills
• Employment history
• Additional professional recognitions
• Compensation details
• How their skills complement other members and support the business

8. Put together your business description

Use the information you’ve gathered so far to create a convincing summary of the problem your product solves, your target market, industry information and any competitive advantages.

9. Create your marketing and sales plan

Detail your pricing model, sales strategy, marketing campaigns, promotional plans and product benefits you’ll highlight. Explain why your target market will choose your product over the competition.

10. Calculate your financial projections and needs

Take your time identifying all your current and projected costs. You’ll need to show the amount of money you will need to operate and a projection of your expected income. Be sure to include a balance sheet, income statements and cash flow statement or projection.

11. Organize your appendices and exhibits

Gather all the supporting documents for each section and put them in the order of their respective plan sections.

12. Write your executive summary

It’s an overview of everything found in your business plan. Write it to make a solid first impression that provides enough information that people know what your plan is about without reading the entire thing. It needs an introduction, overview of the plan, product details and your mission statement.

13. Turn your business plan into your to-do list

Once your business plan is completed, you now have an actionable plan that combines relevant research with all the detailed steps you’ll need to take to get your product or service into consumer homes. This document also opens the door for possible investors and commercial loans to help you with funding. Remember that a business plan needs to be flexible. Sometimes circumstances will change and adjustments will have to be made. Otherwise, you officially have a guide to transfer your business idea into a tangible product. Now that you know how to turn an idea into a business plan, you just have to work your plan.