Everyone makes mistakes, but you wouldn't believe some of the blunders I've seen in business plans over the years.
Here are some real examples from recent plans I have read:
"Sales will hit $1 billion."
"Our projections for fiscal 1993 indicate revenues of $ [no figure given]. "Start-up costs of $ [no figure given] will ensure timely, efficient hardware and software installation."
"Exit Plan: In the unlikely event of company dissolution, the most economical approach will be to fulfill existing contracts and complete outstanding orders, allowing profits to be used for payback and funds not used to be returned to their source."
Imagine trying to convince investors to invest in a start-up company that projects $1 billion in sales. Imagine being so careless as to leave your company's projected revenues and start-up costs blank. Imagine not knowing that an "exit plan" should explain how you are going to get your profit out, not how you're going to dissolve the company!
These examples illustrate why most entrepreneurs don't get funded. Many business plans are downright ludicrous.
I'm going to reveal to you 13 of the most common mistakes business owners make in business plans. If you know what not to do, you'll waste less time making mistakes other people have already made. This way you can learn from the vast majority of business plan writers: the ones who don't get their plans funded.
1. Assume the reader knows what you're talking about.
Many entrepreneurs write a business plan assuming the reader knows them and their company well and is familiar with their background, history, industry and the industry's condition. That's not the way it works. The people who make the final decision on whether to invest in your business will probably know very little about your or your business. Write your business plan with this in mind.
2. Use a lot of technical jargon.
Never assume the reader understands your abbreviations or industry terms. If you must use technical terms in your plan, explain them on first mention. Many entrepreneurs think technical jargon impresses readers. Not so; it merely frustrates them.
3. Assume the bigger your industry and market, the more impressed the investor will be.
So what if your market is $2 billion. That statistic has nothing to do with your personal situation. Just because there is a big market for your product or service doesn't necessarily mean you will get your fair share of it. What counts is your evidence as to how you will go about obtaining your share of that marketregardless of how big or small that market is.
4. Fail to emphasize how you'll make money.
Entrepreneurs looking for money forget that investors want only two things: to keep their money and to make more. They're not always impressed with sales. Sales cost money. What they care about is profits. Show them how you will make profits, profits and more profits, or don't bother showing them your business plan..
To convince potential investors they will meet their goal of high returns if they put their money on you, give them a detailed explanation of how you will make a profitand do it up front, not 100 pages into the plan.
5. Put too much emphasis on the product or service.
Products and services don't make money. Only businesses make money, and businesses require much more than just a product or service. They must have people; they must be organized and managed; they must have facilities; and they must be able to deliver their product and collect their money. In other words, a business must be run well.
Your prospective investors don't want to know a lot about your product or service; what they want to know is how you are going to run your business.
6. Use projections that don't make sense.
You must know your business projections down to the penny, and those projections have to make sensenot on a yearly basis, not on a quarterly basis, but on a monthly basis. Investors want to know exactly how you are going to run your business each month for at least the first two years you are in business.
Start by explaining unit sales of your product or serviceevery product or service can be broken down into units of one form or another. Next, explain your pricing strategy. Then multiply the per-unit price by the number of units sold to arrive at projected revenues. For expenses, give detailed explanations of each expense category.
Be realistic as well as accurate in your projections. Investors are turned off by projections that constantly repeat the same numbers over and over. No business is unaffected by seasons and industry cycles. Sales don't constantly climb up and up; expenses don't remain the same as sales increase. Do your homework before you start writing your plan. Don't guess as you go along.
7. Fail to break down how you will use the funds.
If you expect someone to give you their money, you'd better consider it sacred and vouch for every penny of its use. Wouldn't you want as much consideration if it were your money? Yet most entrepreneurs merely gloss over how they will spend their investors' money in very general terms.
The more general you are, the less likely you will get the money you're looking for. Break your spending strategy down, then break it down again, until you can explain exactly how you are going to spend the funds.
8. Use your resume.
You are not going for a job interview; you are going to find investors who will put their money into your business. Explain your past only in terms that are pertinent to obtaining this business funding. Show how your past experiences will help you succeed with this business venture. And be truthful; include your ups and downs, your strengths and weaknesses.
9. Fail to "sell" your idea or concept in the executive summary.
You have only a few minutes to grab the reader's attention, and the place to do it is in the executive summary. In dealing with investment bankers and sophisticated investors who read business plans for a living, I find that most of the time I have to force them to read the plans cover to cover. What does it take to get the average financing source to read through an entire business plan? It takes a great executive summary.
Although your executive summary is the first thing in your plan, don't write it first; write it last. Not until you have sweated through the plan from start to finish should you write the executive summary. Take the best from the entire plan: make your business sound like a "must" investment. Then you'll get the attention of your reader...and he or she just might finish reading your plan.
10. Be boring and unclear.
To stand out from the pack, a business plan must be readable. By "readable" I don't mean flashy paper or fancy typefaces, and I don't mean cute words or catch-phrases. I mean a plan that makes sense, is easy to read, and tells an enjoyable, informative story. You don't have to entertain your reader with jokes every other paragraph; you just have to get to the point, make it understandable, then go to the next point, following clearly from one idea to the next.
11. Mislead the reader.
Don't skim over the bad things that have happened to your business. When it comes to discussing the past, tell it like it was, not like you wanted it to be. Investors are going to find out anyway, so you might as well tell it now instead of later. Unless your company is a start-up, you have a past history of sales, expenses, and profits or losses. Explain what you learned from any problems and how you're going to avoid them in the future.
12. Take forever to get to the point.
Most business plans ramble on and on full of unimportant ideas and irrelevant thoughts. Focus on the subject at hand. Investors are not interested in what is happening in the world. They want to know what your business is about and why they should invest in itand they want to know it right away. Don't spend 40 pages explaining if you can do it in 20.
13. Forget the goal of a written business plan.
Remember, the reason for writing a business plan is not to raise money by mail, but to get an appointment so you can tell your story in person. No investor is going to make a decision without meeting you face to face. So don't write an operations manual; write a marketing tool that will get you an appointment. Maintain that perspective, and you will get that appointment.
Writing your business plan is one of the most important tasks you will ever undertake in your entrepreneurial career. Your plan can't be mediocre. It must be a masterpiece, showing your enthusiasm, backed up with meaningful statistics.
Entrepreneur, August 1993
By Bruce J. Blechman