7 Critical Business Plan Mistakes You Need to Avoid

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This is the fifth blog post in a series by Hal Shelton, SCORE small business mentor and author of The Secrets to Writing a Successful Business Plan. In the previous installments, we looked at “4 Sections Every Business Plan Must Have (and Why They’re Important),” “Why You Need a Business Plan (and the Best Style for You),” “When Is a Good Time to Review and Renew Your Business Plan?,” and “How to Create a Nonprofit Business Plan.” 

Business plan mistakes can result in anything from small setbacks to fatal errors for your business.

Especially for businesses seeking funding, it’s crucial that your information is correct and none of your ideas are misrepresented.

To help you avoid future stumbling blocks, here are seven critical business plan mistakes to be wary of:

1. The opening message does not succinctly describe your idea and why it will be successful.

First impressions are important — a plan is often judged by its two-page executive summary. Bankers, investors, and key vendors are busy people, so if a quick read of this opening section does not provide a clear and persuasive overview, they will likely move on to the next proposal.

2. The business plan is all about you and not what you are doing for potential customers.

Businesses are successful when they provide products and services that profitably satisfy a customer need. You start a business because you are good at what you do and are passionate about it; however, you always have to come back to what you are doing for the customer.

3. There is no focus on specific products and services.

Getting customers and cash flow can be hard at the start. To appeal to a large audience, many businesses try to take a broad approach when describing their products and services. This is not a smart strategy. Your business plan needs to show what you can bring to the market that is unique and different from your competition.

4. There is no clear statement on how you will generate revenue.

Understanding how you will generate revenue — sometimes called the business model — is crucial for your own planning. It’s also important to communicate this clearly in your plan when applying for bank loans and asking for approval from credit committees.

5. The sales forecast is not believable.

The sales forecast needs to be supported by data and analysis, a marketing plan that will find prospects and convert them into customers, and an analysis of competitor reaction to a new market entrant. Unfortunately, a good product or service will not sell itself. The problem with unsupported, robust sales forecasts is that the reader discounts them and moves on, and you are not in the room to defend your plan.

6. The funding amount you’re asking for is not supported by the financial statements.

There is a natural conflict between asking for money and wanting to demonstrate that you have a highly profitable business. Sometimes entrepreneurs show robust sales projections, which masks the funding needed. Or they request larger funding than they need since they feel it is a negotiation and they need to ask for $100,000 to get $75,000.

Yes, there is a negotiation, but the requested amount must be supported with at least a three-year monthly cash flow projection.

7. The funding you’re asking for primarily goes to your first-year salary.

Banks and investors prefer to provide funding for assets or activities that will make money like buying a building or equipment, designing and building a website, or funding a robust marketing program. They are more reluctant to fund employee salaries. Taking a modest pay until the business generates sufficient cash flow is often seen an indicator of your commitment to your business.

Key Lessons

  • Incorrect information in your business plan can lead you to make poor business decisions.
  • Committing these critical mistakes will most likely result in your business plan being rejected by a potential bank lender or angel investor.
  • Your plan needs to be well thought out with clear messages stating why you are the right person at the right time to make this a business successful.

Next Steps

  • Keep these critical mistakes in mind when writing your business plan.
  • If you have already started writing your plan, are there any changes you will be making now that you know what the common mistakes are?

Have any questions about business planning that we didn’t cover? Let us know in the comments.

About the author: Hal Shelton’s business planning skills were developed as a certified SCORE small business mentor, corporate executive, nonprofit board member, early-stage company investor, and author of The Secrets to Writing a Successful Business Plan: A Pro Shares a Step-by Step Guide to Creating a Plan That Gets Results. Suggestions for additional topics are welcome; email Constant Contact or Hal directly from his website: www.secretsofbusinessplans.com.

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