Writing a business plan is one of the most important things any business owner can do to aid growth. Business plans are used to help secure funding from banks and investors, but they can also help business owners gain a more holistic perspective of the current and future standing of the business. If executed correctly, a business plan can easily mean the difference between a successful company and a bankrupt company.
Although nearly half of all newly created businesses fail within five years, studies have shown that the majority of businesses that survive beyond the five-year mark follow a strategic business plan. Yet despite the importance of business plans, there are still several mistakes business owners make that jeopardize their ability to create plans that guide growth and help acquire financial investments. With that in mind, here are nine of the biggest business plan mistakes people make:
1. Not Writing One
Not writing a business plan at all is undoubtedly the biggest mistake you can make. Unfortunately, many business owners don’t believe that a business plan is a necessary part of their operations, particularly if they aren’t raising money right now. But the truth is, business plan development offers a myriad of other benefits that aren’t directly related to fundraising.
As previously mentioned, it can help business owners create a roadmap for their business that allows them to take a holistic approach to growth. But it can help create accountability within the management team and provide an incentive to create financial forecasts and conduct market research.
Furthermore, although you might not be interested in raising money right now, there’s a high chance you may need to raise money in the future. Small business owners and entrepreneurs rarely have the cash on hand to support their businesses for the first few years.
2. Not Getting Another Opinion
Everyone suffers from vision bias when it comes to creating content. After you’ve written and read something for so long, it’s natural for your eyes to glaze over mistakes that someone with a fresh sight of eyes would notice.
Always get second (and even third) opinions about your business plan. In addition to sharing your plan with your team, you should also share it with someone who has experience running a business or writing business plans.
If you don’t have a mentor or professional you can show it to, consider joining local business meetups and organizations. These networking opportunities allow you to meet others with similar interests who would likely be happy to take a look at your plan. Lastly, consider hiring a business plan writer to edit your plan and provide you with recommendations and feedback.
3. Ignoring Traditional Structure
Investors and banks are accustomed to a particular format and structure for business plans. While there’s nothing wrong with getting creative with your approach, it’s better to stick to the tried-and-true route when it comes to format. The components of your business plan should follow those of traditional business plans. Take a look at a simple business plan template for an idea of what to expect when it comes to business plan style and structure.
4. Unrealistic Financial Projections
All of the financial projections in your business plan should be accurate and verifiable. Every potential investor wants to see a realistic picture of where you’re at. This not only allows them to make an educated investment decision, but also helps build trust early on. Inflating your numbers in any way can make you seem unreliable and unprepared, and will likely only hurt you in the long run. Projections that are overly optimistic and don’t align with your research, metrics, and data can raise major red flags.
5. Ignoring Competition
Some entrepreneurs falsely believe that their idea is so unique that they don’t have any competition. Even small business owners can fall victim to the assumption that their offerings are better than other local offerings. For example, a local bakery shop owner could feel so confident in their recipes that they neglect to see other local bakeries as competitors.
To add insult to injury, far too often, competition is looked at through a negative lens. But competition can be a good thing. If there was no competition, then it would be difficult to demonstrate a need for your company, as you’d have to ask yourself, how was this need being met before my business launched? Pay attention to your direct and indirect competitors. Focus on your niche and what your competitive advantages are.
6. Adding Too Much Information
Business plans should only contain as much information as the investor needs to make a decision. Adding too much information can further complicate your business plan and make it difficult to pinpoint the elements that make it special.
With each sentence you write, ask yourself, what is this contributing to the business plan and how does it influence or impact how a potential investor feels about the company? The majority of investors have a simple checklist of what they’re looking for, and everything else can just cloud your message.
7. Inconsistent Messaging
Even basic business plans contain a ton of information and data. However, if the messaging isn’t consistent throughout, you can end up confusing both the investor and your team. For example, if your market research section contains Bureau of Labor statistics that say one thing, but your financial projections don’t model numbers that align with that, it’s clear something isn’t right. The last thing you want to do is create confusion when a business plan should offer clarity.
8. Badly Written Executive Summary
The executive summary is the first section of your business plan. Think of your executive summary as your business’s book jacket. It provides insight into what to expect throughout the rest of the plan and encourages them to continue reading. Because it sets the tone for the business plan in its entirety, it’s crucial that the executive summary is well executed.
At a high level, the executive summary should summarize the rest of the sections in your business plan. It should introduce the company, the market, competition, qualifications, and team.
9. Not Highlighting Your Team
Your team is the core of your business, and many investors want to invest in real people not just companies (even the most promising companies). Use your “Team” section to show investors why you’re uniquely positioned and qualified to lead the company towards growth. Discuss your background and relevant experience, as well as your passion for the industry. Do the same for other key members of your team.
There’s no doubt about it: your business plan is a reflection of your company and who you are as a business owner. If you don’t take the time and effort to ensure you’re creating a plan that meets expectations, chances are investors won’t take the time on you. If you cut corners on your business plan, lenders will assume you’ll cut corners in other ways, too.
Some business owners falsely assume that solid sales and strong referrals are enough to convince investors to loan them much-need capital, but this isn’t the case. Investors aren’t just concerned about what your business is like today, but what your business will be like three years from now. To impress them, your business plan needs to paint a clear picture.
As you make the finishing touches on your business plan, consider entering it into business competitions or reaching out to alumni for critique. You can never be too careful, and when it comes to convincing lenders, it’s much better to be safe than sorry.
Dave Lavinsky is an internationally renowned expert in the fields of business planning, capital raising, and new venture development. He is the co-founder of Growthink, a business plan consulting firm that has helped over 1 million companies grow.