Writing a business plan is one of the most important steps to starting a business. However, many of the common business plan mistakes that novice entrepreneurs make can doom their businesses to failure (or at least make it a lot harder for them to succeed). Here are five major mistakes not to make in your business plan.
- Not doing your homework. Doing market research — digging into Census data, government records and projections, and conducting focus groups or online surveys — may not sound like fun, but it’s essential to a successful startup. Why? Armed with this information, you can develop a laser-focused picture of your target customers. And the more you know about your target customers, including their income, marital status, location, age, purchasing habits and online activities, the easier it will be for you to reach them, get their attention and get them to buy from your business.
- Being overly optimistic. Just because you’re entering a $1 billion market doesn’t mean it’ll be easy to make $1 million off of it. Novice entrepreneurs often make the mistake of assuming that they’ll capture 1 percent of the market right off the bat—and that, if the market is big enough, 1 percent is all they’ll need to succeed. Bankers, investors and others who will be reading your business plan aren’t going to believe this; on the contrary, it will show them how naïve you are. Instead, provide a well-thought-out marketing plan detailing how you’ll market the business to the target customers you described, with realistic estimates of market share.
- Playing fast and loose with financials. If you’re like most people, developing financial projections probably isn’t your idea of a fun Saturday afternoon. However, detailed financial projections are the backbone of a solid business plan. Guessing at projected sales and revenues or making unsubstantiated assumptions won’t impress (or fool) prospective financing sources. Worse, if you don’t have an accurate idea of how much your business will cost to start, how quickly cash will come in and how long it will be until you see a profit, you can easily end up over your head. Inadequate capital is one of the top reasons why startup businesses fail; preparing detailed financials will help you avoid this fate.
- Writing a weak executive summary. The executive summary is the beginning of your plan and sums up everything in the rest of it — ideally in just a couple of pages. The executive summary is vitally important: If it doesn’t intrigue, excite and impress a lender or investor, he or she won’t bother to read the rest of your plan. Common problems with executive summaries include making them way too long, failing to clearly explain the business idea/business model, and simply being boring. Make it easier by writing your executive summary last, after you’ve developed the rest of the plan and have all the relevant information at hand.
- Not fine-tuning your business plan. Pitch a sloppy business plan to a potential financing source, and not only will you fail to get capital, you’ll damage your reputation. Before you share your business plan with bankers, lenders or investors, make sure it’s as perfect as you can get it. Provide backup for all of the information that you include, such as statistics and financial projections. Proofread it for grammatical, punctuation or spelling errors. Need help? SCORE and your local Small Business Development Center (SBDC) are two great places to get advice, guidance and other pair of eyes to review your business plan and provide feedback. (Disclosure: SCORE and the LA-SBDC Network are clients of my company.)
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Karen Axelton is Chief Content Officer of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her company’s blog at SmallBizDaily.com.