Risky Business: 6 Potential Pitfalls of Writing a Business Plan There is a downside to putting your business plan on paper. Learn the risks and learn how to protect your interests.
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In their book Write Your Business Plan, the staff of Entrepreneur Media offer an in-depth understanding of what's essential to any business plan, what's appropriate for your venture, and what it takes to ensure success. In this edited excerpt, the authors point out the negative aspects of writing a business plan.
There are several risks associated with writing a business plan. That's right: While one of the main purposes of a business plan is to help you avoid risk, the act of creating one does create a few risks as well. These risks include:
1. The possible disclosure of confidential material. Although most of the people who see your plan will respect its confidentiality, a few may (either deliberately or by mistake) disclose proprietary information. For this reason, you may want to have anyone reading your plan sign a non-disclosure agreement, or NDA, before sending them your plan.
2. Leading yourself astray. You may come to believe too strongly in the many forecasts and projects in your business plan.
3. Ruining your reputation ... or worse. If you fill the plan with purposely overly optimistic prognostication, exaggeration or even falsehoods, you'll do yourself a disservice. Some plans prepared for the purpose of seeking funds may run afoul of securities laws if they appear to be serving as prospectuses unblessed by the regulators.
4. Spending too much effort planning. You then may not have enough energy or time to actually run your business. Some call it "analysis paralysis." It's a syndrome that occurs when you spend so much time planning your business that you never do anything. For a lot of businesspeople, this is a nonissue—they detest planning so much that there's no chance at all they'd forgo actually doing business and merely plan it.
But business planning can take on a life of its own. It's possible to spend so much time planning a startup that you miss your window of opportunity or to schedule such frequent updates of a plan for an established business that it becomes difficult to administer its other details. Big corporations have large staffs, which can be devoted to year-round planning. As a small-business owner, you have to be more selective.
Your planning may be approaching the paralysis stage if you find yourself soothing your nerves about starting a business by delaying the startup date so you can plan more. If you notice yourself putting off crucial meetings so you can dig up more information for a plan update, it's time to suspect that planning has become overly important.
5. Diluting the effectiveness of your plan. If you put too much detail into your plan, you run the risk of overburdening anybody who reads it with irrelevant, obscuring details. A plan isn't supposed to be a potboiler, but it should tell a story—the story of your business. Therefore, it should be as easy as possible to read. That means keeping technical jargon under control and making it readable in one sitting.
Explain any terms that may be unfamiliar to a reader who's not an expert on your industry. And never make the mistake of trying to overawe a reader with your expertise. There's a good chance someone reading your plan will know more than you do. If you come across as an overblown pretender, you can bet your plan will get short shrift.
It's easy to believe that a longer, more detailed plan is always better than a short, concise one. But financiers and others to whom you may send your plan are busy people. They don't have time to plow through an inches-thick plan and may in fact be put off by its imposing appearance. Better to keep it to a couple dozen pages and stick to the truly important material.
6. Expediting your plan. While some insist on endless planning, others try to speed up the process. In an effort to get a plan written quickly to show a potential investor, you may find yourself cutting corners or leaving out vital information. You don't want to take forever to prepare a business plan, but using some of the business plan software programs can make it so easy that you find yourself letting the program do more of the work. Remember, the tools are there to guide you and not the other way around. Give yourself enough time to make sure that:
- Each section says what you want it to say.
- All your numbers add up and make sense.
- You have answers to anything readers could possibly ask you.
