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The Top 10 Business Plan Mistakes

The Top 10 Business Plan Mistakes

It’s been nearly seven years since I posted Top 10 Business Plan Mistakes on this site. Looking back and reading the post again today, I think the list holds up very well. Still, I can’t resist making a few changes. So here is my revised version for 2012, incorporating what I wrote back then that still holds true.

1. Misunderstanding the purpose: It’s the planning that matters, not just the document. You engage in planning your business because planning becomes management. Planning is a process of setting goals and establishing specific measures of progress, then tracking your progress and following up with course corrections. The plan itself is just the first step; it is reviewed and revised often. Don’t even print it unless you absolutely have to. Leave it on a digital network instead.

2. Doing it in one big push; do it in pieces and steps. The plan is a set of connected modules, like blocks. Start anywhere and get going. Do the part that interests you most, or the part that provides the most immediate benefit. That might be strategy, concepts, target markets, business offerings, projections, mantra, vision, whatever. . . just get going.

3. Finishing your plan. If your plan is done, then your business is done. That most recent version is just a snapshot of what the plan was then. It should always be alive and changing to reflect changing assumptions.

4. Hiding your plan from your team. It’s a management tool. Use common sense about what you share with everybody on your team, keeping some information, such as individual salaries, confidential. But do share the goals and measurements, using the planning to build team spirit and peer collaboration. That doesn’t mean sharing the plan with outsiders, except when you have to, such as when you’re seeking capital.

5. Confusing cash with profits. There's a huge difference between the two. Waiting for customers to pay can cripple your financial situation without affecting your profits. Loading your inventory absorbs money without changing profits. Profits are an accounting concept; cash is money in the bank. You don't pay your bills with profits.

6. Diluting your priorities. A plan that stresses three or four priorities is a plan with focus and power. People can understand three or four main points. A plan that lists 20 priorities doesn't really have any.

7. Overvaluing the business idea. What gives an idea value isn’t the idea itself but the business that's built on it. It takes employees showing up every morning, phone calls being answered, products being built, ordered and shipped, services being rendered, and customers paying their bills to make an idea a business. Either write a business plan that shows you building a business around that great idea, or forget it. An idea alone does not a great business make.

8. Fudging the details in the first 12 months. By details, I mean your financials, milestones, responsibilities and deadlines. Cash flow is most important, but you also need lots of details when it comes to assigning tasks to people, setting dates, and specifying what's supposed to happen and who's supposed to make it happen. These details really matter. A business plan is wasted without them.

9. Sweating the details for the later years. This is about planning, not accounting. As important as monthly details are in the beginning, they become a waste of time later on. How can you project monthly cash flow three years from now when your sales forecast is so uncertain? Sure, you can plan in five, 10 or even 20-year horizons in the major conceptual text, but you can't plan in monthly detail past the first year. Nobody expects it, and nobody believes it.

10. Making absurd forecasts. Nobody believes absurdly high “hockey stick” sales projections. And forecasting unusually high profitability usually means you don’t have a realistic understanding of expenses.

 

The author is an Entrepreneur contributor. The opinions expressed are those of the writer.

Tim Berry is the president of Palo Alto Software Inc., based in Eugene, Ore., which produces business planning software. He is also the author of 3 Weeks to Startup and The Plan-As-You-Go Business Plan, published by Entrepreneur Press.
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