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Top 10 Business Plan Mistakes
When it comes to putting together a business plan that will attract investors, nothing beats getting it right the first time.
Every business needs a business plan. Creating a winning plan can be an overwhelming task for many entrepreneurs looking to become the next Google or Twitter. Most “bad” plans share one or more of the following problems:
- The plan is poorly organized: Most plans are created from scratch and lack style, fluidity, and organization. In fact, the majority of plans are not worth the paper they’re printed on. If you want to create a business plan in the style and format that investors are looking for, we recommend using a professional business plan template or software. The best and most affordable business plan template we found is from Business Plan Success http://www.business-plan-success.com. For only $40 you can be assured that your plan will be written correctly, professionally, and in the format investors are looking for.
- The plan is poorly written: Grammar, spelling, punctuation, and style need to be correct. Investors are not going to take you seriously if you can’t even use your spell checker properly. Certainly they are not looking to invest in English majors, however, this is their first glimpse at your business and it needs to be a good one.
- The plan is not complete: Because so many plans are written without a professional template, the entrepreneur doesn’t realize that he is leaving important aspects of a plan unfinished or altogether leaving them out of his business plan. At a minimum your plan must cover customers, products, services, operations, marketing and sales, competition, management team, and the exit.
- The plan is sloppy: If the potential investor cannot easily find his way around your plan chances are it will find its way into the trash before he finishes the first section. Nothing peeves investors more than charts without labels, incorrect industry jargon or terminology without definitions. Most investors will give your plan maybe 5 minutes so make sure it is very presentable and easy to follow. Most importantly, make sure that it gets to the point directly and with examples.
- The plan is too vague: While a business plan is not meant to be a novel, it should also not be so general and vague that the reader cannot learn specific information about what makes your business unique and special. If you're trying to keep the information vague because your business involves highly confidential material, processes or technologies, then show people your executive summary first. Many venture capitalists and investors will not sign a non-disclosure agreement since they want to minimize their legal fees and have no interest in competing with you in any case.
- The plan is too detailed: Technical details can make your plan unreadable. Keep the technical details to a minimum in the main plan. If you want to include them, do so in an appendix. One way to do this is to break your plan into three parts: a two- to three-page executive summary, a 20- to 40-page business plan and an appendix that includes as many pages as needed to make it clear that you know what you're doing.
- The plan includes insufficient research: Learn everything you can about your business and your industry; customer purchase habits, price points; competitor positioning, size and market share; and overall market trends. You don't want to get bogged down by to many facts, but you should have some numbers, charts and statistics to back up any assumptions and projections you make. Well-prepared investors will check your numbers against industry data. They do their homework and so should you!
- Claiming there's no risk involved in your new venture: Investors understand there's no such thing as a "no risk" business. Trying to convince them otherwise will help your plan end up in the trash. There are always risks. You must understand them before presenting your plan to investors or lenders. Since a business plan is also a marketing tool, I'd recommend minimizing the discussion of risks in your plan. If you do mention any risks, be sure to emphasize how you'll minimize them.
- Claiming you have no competition: I hear this one all the time. It's absolutely amazing how many business owners include this statement in their business plans: "We have no competition." Every successful business has competitors, both direct and indirect. You should plan for stiff competition from the beginning. If you can't find any direct competitors today, try to imagine how the marketplace might look once you're successful. Identify ways you can compete, and accentuate your competitive advantages in the business plan.
- Valuing your company like it’s already a Google: Many business owners try and convince investors that their company is worth millions despite having no product, no customers, and no revenue. It’s easy to understand why they do this. They want to give up as little ownership in their company to the investor as possible. If you think potential investors have not seen this before, you couldn’t be more wrong. The first question an investor will ask you is “How did you come up with this valuation?” If you can’t justify the valuation, do not claim it in your plan.
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