10 Biz Plan Blunders
Want your biz plan to attract investors and keep your startup on track? Steer clear of these common mistakes.
By Tim Berry Originally published May 13, 2005
Opinions expressed by Entrepreneur contributors are their own.
In the more than 30 years I've been involved with businessplanning, I've seen styles and fashion of plans change a lot,but the fundamentals remain fairly constant. To help you craft aplan that hits all the right notes, here's a list of some ofthe more common business planning mistakes you should avoid:
1. Don't put off writing a plan. Don't wait untilyou have enough time, don't wait until you have the rightpeople, and definitely don't wait until there's an urgentreason you suddenly need a plan. Instead, just do it now. Recognizethat you need a business plan and that your first step is toprepare your first plan. Get a draft up and running and thencontinue updating it to keep it current with your business. Ofcourse, you'll soon realize that your plan may never be done,but the important thing is, you're planning. You should alwaysbe planning your business.
2. Don't confuse cash with profits. There's ahuge difference between the two. Waiting for customers to pay cancripple your financial situation without affecting your profits.Loading your inventory absorbs money without changing profits.Spending most of your money buying inventory doesn't affectprofits, but cash flow is much more important than profits becauseprofits are an accounting concept and cash is money in thebank--you don't pay your bills with profits.
3. Don't dilute your priorities. A plan that stressesthree or four main priorities is a plan with focus and power.People can understand three or four main points. A plan that lists20 priorities doesn't really have any.
4. Don't overvalue the business idea. What gives anidea business value is not the idea itself but a businessthat's already built on top of it. It takes employees havingshown up every morning, phone calls being answered, products beingbuilt, ordered and shipped, services being rendered, and customerspaying their bills to make an idea a business. Either write abusiness plan that shows you building a business around that greatidea, or forget it. An idea alone does not a great businessmake.
5. Don't confuse a plan with the act of planning. Youneed both to succeed. And your planning process doesn't endwhen your plan is done. The value of a plan is in theimplementation it causes, and implementation starts the day yousettle on the main points of your plan. Understand that yourbusiness plan is never really done-you're always revising it,or should be, because reality is always pressing forward. Without aplan setting markers, you'll never know the difference betweenplan and reality. Work your plan; don't just write it.
6. Don't fudge the details in the first 12 months. Bydetails, I mean your financials, milestones, dates,responsibilities and deadlines. Cash flow is the most important,but you also need lots of details when it comes to assigning tasksto people, setting activity dates and specifying what'ssupposed to happen and who's supposed to make it happen. Thesedetails really matter. A business plan is wasted without it.
7. Don't sweat the details for the later years. Thisis about planning, not accounting, and you're only guessing thefuture in a system full of uncertainties. As important as monthlydetails are in the beginning, they become a waste of time later on.How can you project monthly cash for three years from now, whenyour sales forecast is so uncertain? Sure, you can plan in five, 10or even 20-year horizons in the major conceptual text, but youcan't plan in monthly detail past the first year. Nobodyexpects it, and nobody believes it.
8. Don't create absurdly optimistic "hockey stickprojections" of sales taking off in the near future. Yes,it happens about once a generation, but nobody believes it in abusiness plan because they all say that. No investor is going totell you they believe that even though your sales have been flat upto this point, once you have their money, your sales are going togo through the roof. If you've really created thatonce-in-a-generation business whose sales will take off, thenyou'd better build so much bottom-up detail into that forecastthat even the most jaded investor will believe it.
9. Don't write too much. Keep your business planshort and focused on your main priorities. It's a businessplan, not a doctoral thesis. Stick to the main points, and usebullet points to keep the main points highlighted and simple.
10. Don't sweat the formatting details. No businessplan has ever failed because the page headers weren'tcolor-coded. Don't dress up your plan with multiple fonts, toomany colors or complex page layouts. Don't hide the importantinformation. Keep it simple, and don't sweat the smallstuff.
