One of the most common errors made when creating a business plan is unrealistic financial projections. Many entrepreneurs make the naive assumption that their startup will be profitable right away, but in reality, most businesses should expect to be in the red for at least the first year. When a lender reads the executive summary of your business plan, they will do a “smell test and then a gut test”, according to RISBDC business advisor Josh Daly. This means that they will decide whether or not to continue reading based on their intuition.
Therefore, it's important to focus on the executive summary and make sure it is clear and concise. Someone without a strong business background should be able to understand it and demonstrate that their company is viable in brief and clear points. Daly recommends 1-3 sentences each about your business career, customer base, the market, the competition, your qualifications, and your team. The summary should fit about two pages and convince your audience to keep reading.
If you are looking for financing, potential lenders should immediately know how much money you want to borrow and how it will be used. For most small businesses, a concise, well-organized business plan should be between 5-10 pages long. To make it more attractive, include visual elements such as charts, maps, or graphics when appropriate. Additional supporting financial projections or research data can be included in an appendix.
Plans that are significantly longer don't necessarily provide more or better information, and they risk losing their audience before they even finish reading them. If you were an investor, would you want to read a 200-page business plan? Most investors have a mental list of 10-12 points that they look for in the plan; everything else just gets in the way. The purpose of your plan is not to demonstrate the depth of your knowledge, but to focus on the key elements of your business. Clear and concise wording is always welcome, and if you have additional information that you would like to include in the document, create an appendix.
The biggest mistake you can make in a business plan is not planning at all. However, that doesn't mean that everyone should write a detailed business plan. While you should do some planning to determine the direction in which you want to take your business, your plan could be as simple as a one-page business plan or even a presentation presentation that highlights your current strategy. Your strategy and ideas will undoubtedly evolve as you go, but taking a little time to figure out how your business works will pay dividends over time.
One business plan mistake that new entrepreneurs often make is not properly researching their target market. They might have a great product or service, but if they don't know who their customers are, they'll have a hard time communicating with them. It's important to have a clear idea of who your potential customers are, their needs, and how your product or service meets those needs. Without this knowledge, it's difficult to create an effective marketing strategy.
New entrepreneurs should take the time to thoroughly research their target market. This involves identifying their needs and wants, understanding their shopping habits and knowing where to find them. Only then will entrepreneurs be able to develop an effective marketing plan that will help them reach their potential customers. When making a business plan, it is also important to analyze the cash conversion cycle and how to reduce it as well as how to finance cash flow deficits even when the company is profitable.
Researching and writing a business plan is an important step in outlining the roadmap that your company will take and an indispensable step in ensuring funding for initial costs or growth. For example, if you're writing an internal business plan, you can probably skip the sections that describe your team. Since a business plan is more of a marketing tool than anything else, I recommend minimizing the discussion of risks in your plan. The worst business plans hide assumptions throughout the plan so that no one can tell where the assumptions end and where the facts begin.
Every company has competition, even if it's a completely different way of solving the same problem. No small business owner has all the skills and personality traits needed to take a company from the seed of an idea to the world on their own. Writing a business plan simply to “check the box” and have a bunch of paper to hand over to a bank loan officer is not the right way to approach business planning. There are many elements that make up a good business plan; avoid these errors in the business plan and give your business idea the argument it deserves.
A good business plan presents an overview of the business now, in the short term and long term future. Too many business plans neglect this area; probably because it seems to be the most challenging without having real data about revenues covering expenses it will be difficult to demonstrate that you have a viable path for success. The RISBDC offers workshops and personalized no-cost advice for businesses looking for help refining their plans and taking next steps towards success.
