Writing a business plan is an opportunity to carefully think through every step of starting your company so you can prepare for success. It is a critical part of the planning and startup process. A strong well developed pointed business plan provides an essential road map to help communicate where you want to go and help keep you on track.
As with many maps there tend to be some pot holes along the way. Knowing where and what they are can help you navigate to avoid them. Below are what experts feel are the top 5 mistakes made when developing a business plan;
- Business model is not well defined therefore the opening message does not succinctly describe your idea and why it will be successful.
First impressions are important — a plan is often judged by its two-page executive summary or teaser. Bankers, investors, and key vendors are busy people, so if a quick read of this opening section does not provide a clear and persuasive overview, they will move on to the next proposal.
- The business plan is all about you and not what you are doing for potential customers.
Entrepreneurs are always excited about their vision and often see what they have to offer from their perspective and not from their customer’s vantage point. Businesses are successful when they provide products and services that profitably satisfy a customer need. You start a business because you are good at what you do and are passionate about it; however, you always have to come back to what you are doing for the customer.
- There is no targeted focus on specific products and services.
Getting customers and cash flow can be hard at the start. To appeal to a large audience, many businesses try to take a broad approach when describing their products and services. This is not a smart strategy. Your business plan needs to be very well defined and pointed. It should show what you are expert at and what can bring to the market that is unique and different from your competition. Clearly state what you are the master of vs. the jack of all trades.
- There is no clear statement on how you will generate revenue.
Understanding how you will generate revenue is crucial for your own planning. It’s also important to communicate this clearly in your plan when applying for bank loans and asking for approval from credit committees. A well thought out and developed business model is essential. The sales forecast needs to be supported by data and analysis, a marketing plan that will find prospects and convert them into customers, and an analysis of competitor reaction to a new market entrant.
- The funding amount you’re asking for is not supported by the financial statements.
There is a natural conflict between asking for money and wanting to demonstrate that you have a highly profitable business. Sometimes entrepreneurs show robust sales projections, which masks the funding needed. Or they request larger funding than they need. The requested amount must be supported with at least a three-year monthly cash flow projection. Also, keep in mind that banks and investors prefer to provide funding for assets or activities that will make money like buying a building or equipment, designing and building a website, or funding a robust marketing program. They are more reluctant to fund employee salaries. Taking a modest pay until the business generates sufficient cash flow is often seen an indicator of your commitment to your business.
It is often useful to get the help of a business consultant to provide an outside perspective to your plan. The fresh view can often provide insights that those close to the plan can not offer. The proverbial saying “You can’t see the forest for the trees” is often times true in this case.