What are the most common mistakes in a business plan? I rounded up counselors from SCORE Chicago and took an informal survey. Here are mistakes that they see again and again …
1. Length. “Writing way too much. No one will every read a 70 page document,” says Mitch Morris. “Narrative sections are always much too long and not appropriately focused,” comments Marge Schneider. “Too long (and repetitive)” emails Al Grossman.
2. Poor Executive Summary. Esh Noojibal discovers too many plans where the “executive summary does not clearly express the product, business (2-4 sentences), money needed and when and how the money would be paid back.” Al and Jack Navarre think the executive summary should be in the cover letter.
3. Unfocused Marketing. Mitch faults clients for “not putting enough detail in a marketing plan. Vague statements rather than concrete plans.” Esh finds entrepreneurs “often include irrelevant market data, copied from the web or other places.” Larry Pelka says clients are “not specific about why customers will buy, and their plans to sell. It sometimes appears that the philosophy is — If I sell, people will buy.”
4. Unrealistic Costs. Mitch observes that prospective small business owners are “not realistic about costs associated with the cash flow plan.” Marge finds “cost estimates, especially build-outs, are usually incomplete, not researched, not based on at least three estimates, don’t allow for contingencies, and often include too much startup inventory.”
5. Vague Pricing. Esh is concerned that clients “do not have a good handle on estimating pricing of their product/service. This affects the break-even sales projections (if they do these at all) and other financial projections.”
6. Unrealistic Projections. Mitch suggests that entrepreneurs are generally “too optimistic about sales growth and operating expenses.” Marge notes clients’ plans often have “no basis for projections, such as research, past sales and/or letters of intent.” Esh states that clients “do not understand how to forecast (estimate/guesstimate) their sales. Therefore all financial projections become unrealistic.” Carlos Bastidas agrees; he often sees sales projections that are “not defined on solid basis, poorly researched. The result either is very optimistic or very pessimistic profit forecasts.”
7. Poor Understanding of Cash Flow and Its Implications. Larry finds that too often clients “lack understanding of how cash flow estimates determine the amount of money needed in the business before you begin. Most businesses need working capital before they turn the cash corner.” Says Al, “The key is cash flow projections. It tells the lender how they get paid back.” And “one important deficiency is a clear understanding of the financial information such as cash flows, profit and loss tables and break-even points,” notes Carlos.
8. No Exit Strategy. Esh worries that too many “business plans have no exit strategy. This applies especially when large amount of money has to be borrowed. The financing people want to know what happens to the business if something happens to the owner.”
Bob Paul, who teaches business plan workshops, recommends: “Don’t think of your business plan as primarily an external document for investors. Instead create it for yourself and your team. This focus also helps eliminate a lot of fluff and has a better chance of focusing on critical issues and action plans. After you write an internal business plan, you can always use portions or dress it up for banks and investors.”
Carlos encourages entrepreneurs to write their own plans. When it’s drafted by a consultant or friend, he says, “it does not reflect what the owner of the business really wants, or the owner is completely detached from the contents of the document.”
In sum, Al advises prospective entrepreneurs to remember the 5 C’s for a good plan (and successful business): Cash Flow, Credit, Capital, Collateral, and Conditions.
Are you struggling with any of these 8 mistakes? Find your local SCORE office and a free counselor to help you through it. If you’re in the Chicago area, you are invited to sign up to talk to one of us.
Other links on mistakes to avoid:
9 Top Business Plan Mistakes (from discussions with banks, venture capital and private equity firms, and individual investors.)
Don’t Make These Critical Mistakes in Your Business Plans from Profit Dynamics survey of 250 venture capital firms.
10 Top Business Plan Mistakes, by Andrew Clarke, on Entrepreneur.com
Ten Top Business Plan Problems Victoria Posner of BizPlan Rx. (she has a background in commercial lending.)
SCORE’s advice on Thinking Through Your Business Plan
Related post of mine: What’s Missing From Everyone’s Marketing Plan Drafts?