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Common Business Plan Mistakes
While including the necessary items in a business plan
is important, you also want to make sure you don't
make any of the following common business plan mistakes:
- Putting it off. Too many businesses make business
plans only when they have no choice in the matter. Unless
the bank or the investors want a plan, there is no plan.
Don't wait to write your plan until you think you'll
have enough time. The busier you are, the more you need
to plan.
- Cash flow casualness. Most people think in
terms of profits instead of cash. When you imagine a
new business, you think of what it would cost to make
the product, what you could sell it for, and what the
profits per unit might be. We are trained to think of
business as sales minus costs and expenses, which equal
profits. Unfortunately, we don't spend the profits
in a business. We spend cash. So understanding cash
flow is critical. If you have only one table in your
business plan, make it the cash flow table.
- Idea inflation. Don't overestimate the importance
of the idea. You don't need a great idea to start a
business; you need time, money, perseverance, and common
sense. Also, a new idea is harder to sell than an existing
one, because people don't understand a new idea and
they are often unsure if it will work.
- Plans don't sell new business ideas to investors.
People do. Investors invest in people, not ideas.
The plan, although necessary, is only a way to present
information.
- Fear. Doing a business plan isn't as hard as
you might think. You don't have to write a doctoral
thesis or a novel. There are good books to help, many
advisors among the Small Business Development Centers
(SBDCs), business schools, and there is software available
to help you.
- Vague goals. Leave out the meaningless business
phrases (such as “being the best”) because
they are simply hype. The objective of a plan is its
results, and for results, you need tracking and follow
up. You need specific dates, management responsibilities,
budgets, and milestones. Then you can follow up. No
matter how well thought out or brilliantly presented,
it means nothing unless it produces results.
- One size fits all. Tailor your plan to its
business purpose. Business plans can be different things:
sales documents to sell an idea for a new business,
detailed action plans, financial plans, marketing plans,
or personnel plans. They can be used to start a business,
or run an existing business better.
- Diluted priorities. Remember, strategy is focus.
A priority list with 3-4 items is focus. A priority
list with 20 items is certainly not strategic, and rarely
(if ever) effective. The more items on the list, the
less the importance of each.
- Hockey-stick shaped growth projections. Sales
grow slowly at first, but then shoot up boldly with
huge growth rates, as soon as 'something' happens. Have
projections that are conservative so you can defend
them. When in doubt, be less optimistic.
By Tim Berry, June 15, 2004
About the Author
Tim Berry is a business planning expert, author of
several books and planning software packages.
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