Writing a business plan is an important step in launching any type of business. A well-written business plan can help you receive funding, recruit partners and employees and, why not, have a better understanding of the business idea.
On the other side, a business plan full of mistakes and inconsistencies will take you one step closer to failure. Therefore, make sure you know what the most frequent mistakes within a business plan are and learn how to avoid them.
1. Vague objectives
The objectives you set out for your business don’t need to be marketing slogans, but rather clearly reflect what the things you intend on doing are and how you intend to implement them. When defining your objectives, apply the SMART criteria (specific, measurable, achievable, relevant and time-bound).
2. Lack of research
When you’re too determined to put your business plan on paper too fast, you will be tempted to skip the market research or perform a superficial one, thinking that you’ll be able to improve it along the way. The lack of this component can damage your business in the long run. Thus, you need to intensely study the business sector your company is a part of before you actually become a part of the industry. This way, you are able to make sure that the data you have is up-to-date and easy to verify. Learn as much as you can about the industry, the trends and the dynamic of the market, your clients, their purchasing behavior, competitors and their strategies to demonstrate to the person evaluating your business plan that you know the market and that you are prepared to face head-on the competitors.
3. Unrealistic estimates
Entrepreneurs often fall prey when unrealistic estimates are concerned: the number of potential customers, the production costs, sales level and the price of your products or services. The premises you start from are extremely important because they influence all the later decisions. If the numbers included in your plan are exactly the opposite of what the market evolution says, a potential investor will see right through that. Unrealistic data is easy to detect by experts and can affect the credibility of your business and the funding chance as well. Moreover, you must be prepared to sustain your financial projections and offer detailed information where it is needed.
4. Ignoring your competition
No business will activate in a competitive-free market. That is why, it is important that during the process of writing your business plan you show that you know who your direct and indirect competitors are. If the entrepreneur underestimates its competitors and overestimates the value of the delivered product or service, this can send a negative vibe to potential investors because they may assume that there is the risk the entrepreneur will lose sight of other elements that can have a significant impact on the business. Even though your business idea is fresh, hip and new and there are no potential competitors for now, in the near future they will make their presence known. Guaranteed.
5. Ignoring the cash-flow
When planning a business, very few entrepreneurs calculate the necessary cash-flow to ensure the smooth sailing of day-to-day activities. Most forecasts only take into consideration costs and revenue sources. If the revenue is higher than the costs, a profit will be obtained. Thus, the investment will become attractive. Still, this is not the only condition a business model has to fulfill. Having the necessary money at the right moment is another criterion which you should take into account in the planning stage.
6. Omitting risks
The enthusiasm that comes when starting-up a new business can prevent many entrepreneurs from avoiding the risks that may appear during the first few stages after launching a company. Although having a healthy dose of optimism is great when starting a business, you need to consider the potential risks that can pose a threat to your business. A back-up plan can become a real asset which the entrepreneur can use when negative scenarios tend to materialize.
A risk management plan will help you obtain an overview on the evolution of the business. So don’t just create it as a filler chapter to pull the wool over the eyes of the investor. If you present the possibility of an earthquake or a fire in this section, no potential investor or business partner will be impressed. Actually, it’s quite the opposite.
7. The plan is written in vague terms
A business plan is not a short-story or a novel. So before you send it a potential investor or, share it with a friend or a family member outside of your business so that he or she can read it. If that person does not understand from the get-go the business idea, the competitive advantage and ways of developing your business in the next year, do yourself a favor and rewrite it. Why? Because, if this is the case, the person evaluating it won’t waste time reading the business plan three times to make assumptions on what you wanted to say. Rather, he or she will reject it. Consider that the ones in charge with evaluating business plans see dozens of such documents on a daily basis. Therefore, ensure that everything is well-structured, the terminology is clear and there are no ambiguities.
If you write your business plan in general terms because you are afraid someone will steal your business idea or if you’re relying on sensitive processes and technologies, first you should send the executive summary and ask to draw up a confidentiality agreement.
8. The plan is overloaded with details
Don’t use too much technical jargon or to many unnecessary information because you risk to bore or tire the person who reads your business plan. Keep the technical details to a minimum when presenting the business plan. However, if a better clarification is needed, go ahead and include the specialized details in the annexes. The potential investor or partner doesn’t need to know in the first stage of your business how much meat you use for each dish or the technical specifications of the software you will be using for a certain activity. Offer all technical information in the annexes, so that the person who is reading your business plan can access this information if he or she needs additional details.
9. Your plan is not consistent enough
Eliminate potential contradictions; verify the correlations between the activities included in the business plan and the budget. If the cash-flow was modified because the numbers weren’t high enough, make sure you change the numbers wherever they appear both in the plan and the budget. Avoid creating a budget in a Word Document. Rather, use an Excel application with formulas to have more accurate numbers. Moreover, make sure that the data related to the market analysis, the market share, your competitors are accurate and easy to verify. Offer the sources you’ve used when you gathered the information.
10. Sloppy editing
This may be seen as an unimportant aspect because many entrepreneurs consider that their idea and the idea potential are so valuable that it doesn’t matter the way in which it is presented. In reality, investors pay attention to these details and a business plan full of grammatical errors will show a lack of credibility of the entrepreneur in the eyes of potential investors, even though your business idea may be great. Moreover, the ones reading your business plan may consider that you haven’t put enough effort into writing your business plan. If you’ve created a sloppy business plan, why should they consider you won’t do the same with your business?
Hope you found this article useful. Good luck!