Business Solutions

Many times when I am asked by Entrepreneurs for instructions and tips on how they should go about preparing a business plan for their business project, I explain that it is sometimes easier to talk about the “most common mistakes” that most Entrepreneurs make, and should be aware of when preparing the information instead of what items and information to include in the plan, and by doing so they achieve a better understanding of the necessary elements of a well thought-out and prepared business plan, and following is some of the most common business planning mistakes I identify regularly.

Not Disclosing any Weaknesses. It is a difficult aspect of writing a good business plan, the dealing with problems, obstacles, and weaknesses is part of the planning function, but every business has weaknesses without exception and savvy investors to their due diligence in seeking these out. The best way of handling such issues is to just get them out in the open and to have a detailed action plan that effectively addresses these problems.

No Strategy for Distribution. How your business takes its product and services to market is one of the most fundamentally important questions your business plan addresses, and at all cost, resist the temptation to cover all bases by listing every possible channel possibility, since what this tells the investor is that you really don’t have a distribution strategy.

Lack of Information Integration throughout the Plan. Many Entrepreneurs make the BIG mistake of not integrating the narrative with the numbers in the feasibility, for example, if you site in your marketing plan the advertising media you plan to use and its associated costs and scheduling this should show up in the exact same way in the financial projections. Another example is stating in the plan narrative that you need a loan in the amount of $X amount of dollars, and yet there are no loan payments be made in the financial projections, so always check for such integration between the two sections of your business plan.

Either Poor or No Competitive Analysis. It is not sufficient just to list the name and address of your competitors, since this is NOT an analysis. An investor is interested in knowing such things as what you expect to see from your competitors near-term and long-term, their strategic direction, their core competencies, what makes them tick, why customers buy from them, their marketing and sales efforts, their funding the position, and their weaknesses and how they can be exploited.

Failing to take your competitors seriously only hurts you and your business, so remember every business has competition, whether it is direct or indirect. Show a healthy respect for the incumbents while demonstrating a compelling and believable way to compete with them, so if you downplay the competition or state that you have no competition in either means that there’s no market or you don’t know how to use a search engine.

A Failure to Adequately Address Risks. An Entrepreneur likes to hype the up-side while an investor likes to evaluate risk versus reward, so if you need to raise outside capital you may need to completely subdue your visions of grandeur without boundaries, and instead focus on the external future risks that could prevent your plan from being successful. Remember a clear analysis looking at market, financial, management, and technological risk and any action plans you have for overcoming these obstacles always works best.

A Failure to Disclose Legal Problems. Savvy investors are always on the lookout for potential legal snags your plan may have such as the product developed while you were employed somewhere else, any employment contracts or non-compete agreements, any possible patent or trademark infringement, establishment of clear ownership of your product or service. Full disclosure of any of these issues is a must to avoid larger problems later on, so see attorney if you need to advise on any such issues.

No Sales Assumptions. Business plants that simply state a projected sales number without detailing the precise assumptions made to arrive at the forecasted sales levels are useless to investors, as the assumptions themselves are often more useful than the final sales number anyway because the breakdown the drivers of the company’s revenue model, you should be able to provide some rationale for how your projections were put together, and chances are an investor will expect more than just your “best guess.”

Unrealistic Profitability Projections. Lenders and investors usually have a number of companies that they fund in their portfolios, and it is important to note that a good majority of these companies are not wildly profitable, and a good number of them are actually losing money. So the lesson is it is hard to pull the wool over and investors’ eyes about the profitability you put forth in your projections, as they are keenly aware of the cold, hard reality of the competitive business landscape. You should also know that most lenders subscribe to information services that summarize financial statement data that tells them the actual profitability of businesses in your industry, so in order to avoid this mistake it pays to once again do your homework.

Financial statement studies such as those produced by Dun and Bradstreet and RMA Financial Statement Studies can be found at your local library usually at the reference desk. Be sure and use this data and compare it to your projected financial statements, and know what the numbers say and be prepared to answer any questions about why your numbers may vary from those companies found in your industry.

No Target Market. Most small businesses cannot afford to market to the general Mets consumer and/or industrial markets, as resources are just too limited. Failing to identify a particular customer niche that is being sought is there for a major mistake many business plans make, and not only should the target market be identified and your plan and market research has to be included to demonstrate how this market segment has been identified.

Over-Diversification. Entrepreneurs get excited about their ideas and see numerous opportunities for marketing them, but you should try to focus the attention of the plan on one main opportunity for the project. A new or early stage business should not attempt to create multiple markets nor pursue multiple projects until it has successfully developed a focused main strength, and plans to present endless opportunities without focusing on any one of them just don’t get funded.

In the final analysis, the most important point for you to know and remember, is to produce a well thought-out, clear and concise, and cohesively integrated business plan that addresses and answers the questions and issues, and avoids the most common mistakes.