There is a plenty of information available online on how to write business plans. On our blog as well, you’ve enough information on writing business plans. The purpose of this blog post, however, is slightly different. We tell you how NOT to write a business plan. In particular, we tell you about the mistakes you should avoid while writing a business plan. Many businesses fail to get going because they make the mistakes that we are going to tell you about. Read on to find out more about how NOT to write a business plan!
A business plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals. Business plans may target changes in perception and branding by the customer, client, taxpayer, or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their investment return in that timeframe.
Waiting Till The Last Moment
Nobody really likes to write a business plan. Indeed, many business owners consider writing a business plan to be an unnecessary evil, required only because an investor or a bank would ask for one before making an investment or lending money to sustain the business. That’s why many business owners would rather write their business plan just the night before a meeting with a venture capitalist or with a bank. Bad idea!
When you put off something as serious as writing a business plan up until the last moment, you can be sure it’s not something that would end well for you. Writing a business plan requires meticulous planning and careful thought, and there is no way you can come up with one in just an instant. A messy, disjointed, confused business plan would indicate your lack of seriousness about your business and you’d be lucky to get support from a bank or from a venture capitalist even after this.
Not Being Realistic Enough About Your Prospects
Investors are very serious people, and they hate nothing more than exaggeration. So when you say your business is going to be the “best ever” in the world, or how you’re going to “build the next Google or Facebook”; well, usually that would be the last thing you get to say before you’re escorted out by the security.
Yes, it’s good to be optimistic about what your business can do, but there is such as thing as too much optimism, which would come across as being delusional. A business owner has to be a highly realistic and practical person, if he is given to making unrealistic projections about his business, the chances of his business cutting it in the real world are minimal. When you make a projection of a certain growth rate in your business plan, be prepared to defend it in your meeting with the investors, if you are to be taken seriously.
Ignoring the Cash flow
Many business owners include only an estimation of the profits in their business plan, completely ignoring a cash flow statement. Profit is, of course, sales minus expenses, and while it is a good indicator of the health of a business, it’s not a perfect indicator. This is because a profit statement does not consider the cash tied up in the inventory and the cash yet to be received on sales that have not been paid off by the customer. While this would look good on your profit statement, in reality, however, you’d be actually losing money. That’s why the cash flow is a better indicator of your business health and you should always include an estimate of the cash flow in your business plan.
Making It Too Complicated
Another mistake business owners make is to make the business plan too complicated. Some business plans are a real pain to read because they run into a 100 pages or so, contain far too much information that what is really needed and test the patience of the investors. Remember, you’re only writing a business plan, not a Great American Novel, like one written by Ernest Hemmingway! Your business plan should be concise, precise, and yet informative – like a PowerPoint presentation.
Getting Too Caught Up In An Idea
Many business owners get too caught up in an idea, about the uniqueness of it, how it’s special, or as the cliché goes, how it’s going to “make the world a better place”! But this is not what a venture capitalist is looking for. Investors are more interested in the people behind the idea – which is yourself, the owner of the business- and whether they have the systems in place to execute their plans and make something significant out of those ideas. Investors value execution more than just imagination.
Well, that’s how NOT to write a business plan. We hope you’ve found the blog post interesting and fun. We look forward to hearing from you, so please keep the comments coming!