At Kapso Business Services, India’s Leading Business Brokers we analyze hundreds of companies daily. The business plans that we often analyze are riddled with mistakes . In this article we shall discuss the 8 most common mistakes in business plans.
1. 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. “I can’t plan. I’m too busy getting things done,” business people say. The busier you are, the more you need to plan. If you are always putting out fires, you should build firebreaks or a sprinkler system. You can lose the whole forest for paying too much attention to the individual burning trees.
2. 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.
Understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table. Here’s a free >cash flow template to help you get started.
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. Few successful businesses are based entirely on new ideas. A new idea is harder to execute 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. Plans just summarize business prospects and achievements. Investors invest in people, and their businesses, not ideas.
The plan, though necessary, is only a way to present information. So make sure you’re ready to wow your prospective investors with your knowledge and leadership skills, and don’t expect your business idea—or the business plan you explain it in—to do the work for you.
Here’s our idea validation checklist—it can help you think through whether your idea is viable before you spend a lot of time and money on it.
Doing a business plan isn’t as hard as you might think. You don’t have to write a doctoral thesis or a novel. As we said earlier, the simplest Lean Plan is just bullet point lists and tables, a few pages, plus essential projections.
There are good books to help, many advisors among the Small Business Development Centers (SBDCs), and through the SCORE business mentoring program, business schools, and there is software available to help you (such as >LivePlan, and others).
Leave out the vague and the meaningless babble of business phrases (such as “being the best”) because they are simply hype.
Remember that 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. This article on how milestones make your business plan real and actionable will help.
Tailor your plan to its real business purpose.
Business plans can be different things: they are sometimes just sales documents to explain a new business. They can also be Lean Plans, detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better.
Develop the plan that best suits your business goals.
Remember, strategy is focus.
A priority list with three to four 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.
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. Here’s how we suggest creating your sales forecast.
Editor’s note: This article was originally published in 2007. It was revised in 2018.