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Explain the common errors committed in the formation of a Business Plan.
3. Explain the common errors committed in the formation of a Business Plan.
most common mistakes when writing a business plan? Here is my list of the ones to make sure you avoid. While including the necessary items in a business plan is important, you also want to make sure you don’t commit any of the following common business plan mistakes:
1. Putting It Off
Too many businesses make business plans only when they have no choice in the matter. Unless the bank or the investors want a plan, there is no plan.
Don’t wait to write your plan until you think you’ll have enough time. “I can’t plan. I’m too busy getting things done,” business people say. The busier you are, the more you need to plan. If you are always putting out fires, you should build firebreaks or a sprinkler system. You can lose the whole forest for paying too much attention to the individual burning trees.
2. Cash Flow Casualness
Most people think in terms of profits instead of cash. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which equal profits. Unfortunately, we don’t spend the profits in a business. We spend cash. So understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table.
3. Idea Inflation
Don’t overestimate the importance of the idea. You don’t need a great idea to start a business; you need time, money, perseverance, and common sense. Few successful businesses are based entirely on new ideas. A new idea is harder to sell than an existing one, because people don’t understand a new idea and they are often unsure if it will work.
You don’t need a great idea to start a business; you need time, money, perseverance, and common sense.
Plans don’t sell new business ideas to investors. People do. Investors invest in people, not ideas. The plan, though necessary, is only a way to present information. So make sure you’re ready to wow your prospective investors with your knowledge and leadership skills, and don’t expect your business idea—or the business plan you explain it in—to do the work for you.
4. Fear and Dread
Doing a business plan isn’t as hard as you might think. You don’t have to write a doctoral thesis or a novel. There are good books to help, many advisors among the Small Business Development Centers (SBDCs), business schools, and there is software available to help you (such as LivePlan, and others).
5. Spongy, Vague Goals
Leave out the vague and the meaningless babble of business phrases (such as “being the best”) because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results.
6. One Size Fits All
Tailor your plan to its real business purpose. Business plans can be different things: they are often just sales documents to sell an idea for a new business. They can also be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better.
7. Diluted Priorities
Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each.
8. “Hockey Stick Shaped” Growth Projections
Sales grow slowly at first, but then shoot up boldly with huge growth rates, as soon as “something” happens. Have projections that are conservative so you can defend them. When in doubt, be less optimistic.
• i gnoring the Competition: A business does not operate in a vacuum. There are direct and indirect competitors who will fight tooth and nail to retain their customer base and market share. All too often, the business team will state that their product and service is so great that there are no competitors. This inward attention on the business shows investors that the management is over-confident and may not foresee external factors that can impact the business.
• Incredible Financial Projections: A growing company is what investors want to see and the growth patterns should be realistic and attainable. Financial data that is inconsistent with industry norms and overly aggressive can quickly have your plan shelved. It is far better too error on the conservative side here and work with your accountant on attractive and realistic numbers.
• One Billion Consumers: Claiming your market size as huge and customers as everybody will quickly lose all the credibility of your plan and business. Maybe in the future you can attack different market segments but for now focus on one or two niches you can effectively serve. By showing you deeply understand the clients in a narrow market and can serve their needs, you'll win over the confidence of your banker or investors.
• Procrastination: Many business owners under estimate the time and effort required to build a successful business plan. Don't delay. If you need capital in six months, now is the time to put together a plan and raise the money.
• The Big Deal: A business may have signed a big contact with a major company and over-emphasis of this deal can be perceived as a weakness. If 80% of your revenues are based on a one-company contract, your company could tank if the deal goes sour. Highlight that your company is adept at forging strategic partnerships or winning big contracts and this skill will be utilized to diversify the client base.