How NOT to Prepare Your Business Plan
by Carrie Hinkel on January 16th, 2008
Creating a business plan is absolutely essential for any entrepreneur who is thinking of starting a new business. The best thing about a business plan is that it forces you to create a detailed analysis of your business. In doing so, you might find out that you need a bigger start-up loan than originally anticipated, or that your proposed retail price gives you too small of a profit margin, etc.
A business plan can also help convince banks, businesses or individuals to invest in your idea or to give you a loan. So, it’s important that your business plan is professional, truthful and detailed. You need to show your potential investors that you are serious about your business idea and that you have put time, effort and research into making sure the business will work – even if it has shortcomings or existing competition.
While every business plan is different and will include different information, facts and figures, there are certain things that every entrepreneur should NOT do.
1. DON’T put your business plan together hastily – Creating a business plan is no time to be lazy or to take the easy way out. A business plan is not something that should be done in a day, or even in a week. You should be doing research, crunching numbers, getting information about competitors and even conducting surveys if need be.
2. DON’T fluff the numbers – Business plans are not just created for investors, they’re for the entrepreneurs themselves. If you’re playing with the projected profit or sales numbers, then you should be worried about whether or not the idea is a viable one. It’s better to scrap an idea that doesn’t have merit, then to fudge the numbers and cross your fingers that the idea will work.
3. DON’T ignore weaknesses in your idea – Be truthful about potential problems, but also be proactive in providing a potential solution to each problem.
4. DON’T be overly optimistic when estimating future sales or costs – If anything, you should be overly conservative. That way, you’ll know whether or not your business idea will be able to handle unforeseen costs or price increases. Also, projecting sales too high or costs too low might signal a red flag to investors that perhaps your entire business plan is unrealistic and based on hopes, not facts.
5. DON’T exaggerate your abilities – Instead of selling yourself as a "jack of all trades" who can do everything from marketing to accounting to web development, focus on the talents you really excel at. For the tasks that you are unable to do well, address how you will get those done – outsource, hire employee(s), taking on a business partner , etc.
Avoiding these business plan pitfalls is easy as long you are detailed and honest when outlining your business idea and discussing its shortcomings. Avoiding potential problems all together can prove to be very worrisome to potential investors, as they might wonder why you haven’t noticed some obvious obstacles. And, perhaps, assume your whole business plan wasn’t well thought out.