You already know the evident reason for having a business plan, but there are numerous other good reasons as well, such as setting objectives, developing strategies, hiring new employees, purchasing or leasing assets, seeking investments, and, most importantly, growing your existing business. At some point, you’d like to invite investors to review your business plan. An unstructured plan not only makes a venture unappealing to investors but also fails to provide your company with the proper direction.
There is a lot of information available on how to write a good business plan, but many businesses, particularly start-ups, fail to write an impactful plan. Though there is no such thing as a perfect business plan, it should contain useful information about your company. When it comes to writing a business plan, most entrepreneurs make several mistakes that cost them investor approval.
Mistakes in business plans can cause everything from minor setbacks to fatal errors for your company. It is critical, especially for businesses seeking funding, that your information is correct and that none of your ideas are misrepresented.
Here are seven critical business plan mistakes to avoid in the future to help you avoid future stumbling blocks:
- Your opening message doesn’t concisely describe your idea and why it will succeed!
First impressions matter — a plan is frequently judged by its two-page executive summary. Bankers, investors, and key vendors are busy people, so if a quick read of this opening section doesn’t offer a clear and compelling overview, they will most likely move on to the next proposal.
- The business plan only talks about you and not about what you would do for potential customers!
Small businesses are profitable when they meet the needs of their customers. You start a business because you are good at what you do and are enthusiastic about it; however, you must always return to what you do for the customer.
- Lack of focus on specific products and services!
Getting customers and cash flow can be difficult at first. Many businesses try to take a broad approach when describing their products and services to appeal to a large audience. It is a flawed strategy. Your business plan must demonstrate what you can bring to the market that is distinct and distinct from your competitors.
- There is no clarity on how you will generate revenue!
Understanding how you will generate revenue — also known as your business model — is critical for your own planning. It’s also critical to clearly communicate this in your plan when applying for bank loans and seeking approval from credit committees.
- The sales forecast is not credible!
The sales forecast must be supported by data and analysis, as well as a marketing plan that will find prospects and convert them into customers, as well as an analysis of competitor reaction to a new market entrant. A good product or service, unfortunately, will not sell itself. The problem with unsupported, robust sales forecasts is that the reader dismisses them and moves on, leaving you without a chance to defend your strategy.
- The funding amount you are requesting isn’t supported by the financial statements!
There is a natural tension between asking for money and demonstrating that you run a successful business. Entrepreneurs may present rosy sales projections, which obscure the amount of funding required. Or they request more funding than they require because they believe it is a negotiation and that they must ask for $100,000 to receive $75,000 in funding.
Yes, there is some wiggle room, but the requested amount must be backed up by a three-year monthly cash flow projection.
- The funding you seek primarily goes to your first-year salary!
Banks and investors prefer to fund assets or activities that will generate revenue, such as purchasing a building or equipment, designing and building a website, or funding an aggressive marketing campaign. They are less willing to fund employee salaries. Taking a low-paying job until the company generates enough cash flow is often viewed as a sign of your dedication to the company.
Key Lessons
- Incorrect data in your business plan can lead to poor business decisions.
- Making these critical errors will almost certainly lead to your business plan being rejected by a potential bank lender or angel investor.
- Your strategy must be well thought out, with clear messages outlining why you are the right person at the right time to make this business a success.
Next Steps
- When writing your business plan, keep these critical errors in mind.
- If you’ve already begun writing your plan, will you make any changes now that you’re aware of the most common blunders?
The Takeaway
Many young entrepreneurs create a plan based on a variety of assumptions. It will not only have an impact on your company’s growth but will also deter investors and creditors.
Making a business plan is no easy task. It must be comprehensive, revealing everything from your business model to your marketing strategy. Avoid introducing hazy concepts and unrealistic assumptions. Your business opportunities and plan should explain how you will progress from one level to the next.