Top 5 Business Plan Mistakes to Avoid
by Barbara Weltman on July 3rd, 2007
A business plan is essential for raising money for startup or expansion–through a loan or investors. Without the right plan, opportunities for financing can slip away. Don’t fall into common traps that can derail your plans. Bryan Howe of Masterplans, a Portland, OR-based company providing custom business plans, shares his ideas on what not to do.
Mistake One: Not telling the story well
A plan should pull the reader in immediately and make a compelling case for receiving financing. The tone should be exciting, yet realistic, so the reader wants to get involved with your company. Make it clear from the outset what’s magic about what you do and what you plan to do with the money.
The same caution applies when it comes to the numbers; static, incomplete financials can put the reader off. Be clear about what your "sales" numbers mean in terms of the cost of goods sold, labor and profits. Including a five-year projection of sales figures is meaningless unless you tell the reader what assumptions you’ve made to derive them.
Mistake Two: Using an outdated approach
Business plans a decade or two ago were long, printed presentations that focused on sales projections. You should take advantage of the technology available today and create interactive DVD presentations, or at least provide the plan on a CD-ROM.
Example: If you are starting a retail store, creating a digital presentation of what the store will look like (location and decor) can make your plan come alive for the reader. You can then supplement the visuals with a written plan containing the necessary facts and figures.
Mistake Three: Overdoing market analysis
Unsuccessful plans often ramble on about the size of the market, ignoring the more critical point: How you intend to get the market to buy what you have to sell. The business plan reader usually is sophisticated enough to recognize when a market exists; he or she needs to be told how you expect to capture a share of it. Be specific about your marketing approach.
Mistake Four: Not demonstrating a competent management team
Entrepreneurs often have a great idea for a business but no expertise in running one. Lenders and investors want to know that a company they’re putting money into will be well run, so it goes without saying that a great CEO is essential. The novice entrepreneur needs to recognize that his or her low-level managerial experience may not be enough to run a business well; cede control and fill the CEO slot with someone who can do it right. The same rule applies for other positions in the company, including finances, marketing and other key roles.
Mistake Five: Ignoring the little things
Yes, spelling counts, as do typos, irregular font size and use, poorly formatted graphs, and unused headers. Someone who is going to advance money to your company may not necessarily base the entire lending or investment decision on style, but it can make the difference in a close case.
SIDEBAR
Business plans: Do-it-yourself or use a professional?
There’s no fixed rule. When creating a plan to serve as a roadmap to start a business, doing it yourself can be a good process–it forces you to think about your vision. Business Plan Pro from PaloAlto Software (www.paloalto.com) starts at under $130 (there’s even a special eBay version). When creating a plan to obtain financing from a bank or investors, it may be better to use a professional–it gives you a polished product and a quick turnaround so financing opportunities aren’t lost, says Bryan Howe of Masterplans (www.masterplans.com). Cost for a professional plan: Typically starting at $1,200 for a basic plan needed for an SBA loan.
*Big Ideas for Small Business is a free monthly online newsletter from Barbara Weltman, author of The Complete Idiot’s Guide to Starting a Home-Based Business, Third Edition, and The Complete Idiot’s Guide to Starting an eBay Business. www.barbaraweltman.com