Though every small business is unique, many successful ones start with a common foundation: a business plan. Researching and writing a business plan is an essential step in laying out the road map your business will travel and an indispensable step in securing funding for startup costs or growth. Save time and energy by avoiding these common business plan mistakes.
Seven Top Business Plan Mistakes:
1. Not Making One
As an entrepreneur, surely you’re more excited about doing the object you want to do than writing a plan about it. But recall the wisdom of Yogi Berra: “If you don’t know where you’re going, you’ll end up somewhere else.” Without a plan, you’re likely to spend valuable time and energy pursuing fruitless paths and spreading yourself thin. Make completing your project a priority to focus your energy, stay in the right direction, and improve your chances of landing a small business loan.
2. Being Unrealistic
This can happen on a number of fronts if you’re not willing to ask hard questions, do concrete research, and be honest with yourself. Your business plan can’t represent the best-case scenario or the way you hope things go: it has to grapple with the reality of the marketplace, financial truths, and the entrepreneurial landscape. Focus on being realistic in a few key areas:
- Financial projections: Don’t pad or overinflate your future earnings projections. At best, you’ll look like you don’t know what you’re doing, and a bank won’t trust you enough to lend you money. At worst, they’ll lend you the money, and you’ll go into default or bankruptcy.
- Competition: A big red flag in many business plans is a belief that you have minimal competition — or even none. “You’re always competing for dollars,” said RISBDC counselor Manuel Batlle. Even if your product is unique, your target customers still have choices about what to do with their money. You must address how you will persuade your target market to give their dollars to you.
- Market research: It doesn’t matter what you want to build or sell. Someone has to be willing to buy it for a price that makes it worth selling. No business plan is complete without investing time and energy in up-to-date market research to truly understand market trends, customer interest, competitor performance, and other aspects of product or service viability.
3. Poor Executive Summary
A lender will read your business plan’s executive summary and “give it the sniff test, then the gut test,” said RISBDC business counselor Josh Daly. The lender may decide whether or not to continue reading based on what their intuition tells them. So the executive summary is worth focusing on. Someone without a deep business background should be able to understand it, and it should make the case that your business is viable in short, straightforward points. Daly recommends 1-3 sentences each on your business background, customer base, market, the competition, your qualifications, and your team. A concise summary should fit into about two pages and convince your audience to keep reading. If your plan is focused on securing financing, prospective lenders should immediately know how much money you are looking to borrow and how the funds will be used.
4. Too Long
For a majority of small businesses, a succinct and well-organized business plan should be 5-10 pages long. An engaging business plan includes visuals, where appropriate, to avoid wordiness when a graph, chart, or map will tell the story more effectively. Additional supporting financial projections or research data can go in an appendix. Plans that are significantly longer don’t necessarily give more or better information, and they risk losing their audience before they’re actually read.
5. Not Backing Up What You Say
Along with being realistic in discussing your projections and your market research, you also need to make sure you’re using data and references — not just anecdotes — to support what you’re claiming.
6. Not Focusing on the Team and Your Role as the Head
No small business owner has every skill and personality trait needed to take a business all the way from the seed of an idea, to the world, all by him or herself. It’s appropriate and essential to identify and address gaps in your experience and education and explain how you’ll overcome them. It’s also crucial to briefly introduce your top team members, sell their contributions to your company, and portray how, together, your team is well-rounded and ready to tackle the challenges ahead.
7. Sloppy Mistakes
Typos, grammatical errors, and poor formatting are completely avoidable enemies, taking the shine off your first impression. Your business plan needs to look professional because it’s going to speak for you. Use spell-check. Re-read your plan. Get lots of sleep and re-read it again. Then, even if you’re a great writer and a stickler for detail, have someone else check it over for things you’ve missed. Never underestimate the value of a pair of fresh eyes.
In conclusion, there are many common mistakes that entrepreneurs make when writing business plans. By avoiding these mistakes, you can raise your chances of success.
Here are some of the most common business plan mistakes:
- Not doing enough research. Before you start writing your business plan, you need to do your research and understand the market. What are the needs of your target customers? What are the trends in your industry?
- You are not being specific. Your business plan should be straightforward. This means outlining your goals, strategies, and financial projections in detail.
- It is not being realistic. Your business plan should be accurate. This means setting goals that are achievable and projecting financials that are based on sound assumptions.
- You are not being persuasive. Your business plan should be compelling. This means writing in a clear and concise way that will convince investors or lenders to fund your business.