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Last Updated on January 20, 2024 by Work In My Pajamas
Every business has to have a business plan. Yes, even your dog walking business or handmade crafts business. Writing a business plan will help you pack your creative ideas into a tight bundle of figures, predictions, and dollar signs that will keep you on the right path as an entrepreneur. Plus, a great business plan will get investors on your side.
Sadly, many entrepreneurs don’t know how to write a practical business plan, so they make errors that hold them back and turn off investors. To find out more about these errors and how you can avoid them, check out our list of 6 common mistakes when writing a business plan:
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1. Focusing on profit instead of cash.
Figuring out your cash flow is the most important part of your business plan, according to Palo Alto, makers of a popular business plan writing program. Many new businesses fail due to cash flow mishaps, so skipping over this issue is a huge mistake. They advise that, if you only include one table in your final business plan, make it the cash flow table!
Now, in the short run, you can absorb the shock of some cash flow issues by using a business credit card responsibly. These types of credit cards are offered by companies such as American Express and Chase. Some business credit cards even protect you from problems like poor merchandise or undelivered services.
2. Rambling on and on.
The best ideas can be explained succinctly. If you understand your business concept well, you should be able to sum it up in one tweet!
That’s why MasterPlans, a business plan writing company based in Portland, Oregon, recommends writing a business plan no longer than 15 pages and pairing it with images and a slideshow.
The trick is keeping things short and sweet without being vague.
3. Ignoring competitors.
When you come up with a novel idea, you may think that you’ve discovered a market with no competition. However, the fact is that every successful organization has competition. If you don’t, your product or service may not have enough demand to be worth bothering with in the first place.
Instead of pretending you don’t have any competition, identify your competitors clearly, then come up with a way to make your product or service stand out.
“You need to clearly establish who your client/customer is going to be and try and find a niche,” says John Walmsley of JKW Law. “Something that differentiates you from your competition.”
You can often find your niche by focusing on the ways in which your competitors are not fully meeting customer needs.
4. Overly optimistic financial projections.
According to a March 2008 study published by the Kauffman Foundation, most new businesses don’t produce revenue in the first year and more than half operate at a loss.
“Building a successful business takes time and a lot of it,” according to inspiresme.co.uk, a start-up site for U.K.-based entrepreneurs. “When writing business plans, first-time entrepreneurs often underestimate the time to important financial and logistical milestones.”
So, while accuracy should always be your goal when writing your business report, it’s better to overestimate than underestimate how long it will take you to hit financial milestones, such as getting firmly into the black.
5. Serving up puffery.
Is your business “risk-free” for investors? Is your product “the best” there is? Are you going to “completely revolutionize the market” with your service?
Sure! Investors have heard it all before. What they want to see, as summed up by the experts at Palo Alto, is:
- Specific dates
- Management responsibilities
- Budgets
- Milestones
Basically, they want to know whether you understand how to build and maintain a business. Save the big sales pitch for the customers.
6. Overvaluing your company.
This is linked to the two mistakes above. It’s not that you are trying to trick investors, but your company is your baby, so it’s only natural for you to think that it will turn a profit soon and change the world.
However, you have to be objective. Your company or idea is not worth millions! Maybe someday it will be, but right now, you need to focus on getting it off the ground.
So, get a realistic valuation for your company that you can back up using logic, not your emotions.
In short, the biggest mistake the typical entrepreneur makes when writing a business plan is not bringing their ideas down to earth. While coming up with a business concept is a very creative process, that creativity needs to be hammered into concrete details presented in crisp business language.
If you see writing a business plan as a chore, it will be. However, if you see it as a chance to watch your dreams take shape, it will be an opportunity for you to grow as a business owner.