Top 10 Business Plan Mistakes to Avoid

http://under30ceo.com/top-10-business-plan-mistakes-to-avoid/
Under30CEO | May 17, 2013

Getting a new business off the ground is never easy. Increase your chances of success by avoiding these common business plan mistakes.

1. Giving top-down financial projections 
Don't base your entire business plan on capturing a certain percentage of the market. Your investors will think that you are being far too optimistic, and your chances of raising capital will be scuppered with just one question: What if you don't achieve that market share? Show your investors you've thought about this by explaining exactly how you'll grow your market share, and giving detailed timelines and projections.

2. Predicting exponential growth
The vast majority of businesses do not enjoy exponential growth. Even if you're launching a social network, it's unlikely that you'll be the next Facebook or Twitter. That doesn't mean that your business is doomed to fail, just that it needs to carve out a smaller niche, and find a realistic way of monetizing its smaller market share.

3. Claiming that you have no competition 
Every business has competition. There may be no companies offering the same product or service as you in your local area, but all that means is that you have no direct competitors. You still have to contend with indirect competition. Let's take cinemas as an example: A cinema's direct competition comes from other cinemas, and from movie streaming and rental services. Their indirect competitors are other things that eat up people's leisure time - such as video games, TV shows and even pubs and gyms. Customers have a limited amount of time and money, and you need to persuade them to spend it with you.

4. Weak market research 
Before you invest any money in your business plan, or ask anyone else to invest, make sure your research is airtight. Don't just rely on a quick Google search. Download some relevant white papers, read more books about your industry, and do you own research too.

5. Failing to consider general expenses 
Have you included insurance, taxes, utility bills and other day-to-day expenses in your plan? Forgetting one or more of those bills is all too easy, and it could throw off your financial predictions massively.

6. Poor understanding of cash flow
Cash flow is the bane of most small businesses. All too often, an otherwise viable business goes under because of a temporary cash flow problem. They have enough customers, but they can't access money when they need it to pay bills. Make sure that your business plan factors in the possibility of late payments, unexpected expenses, or short term losses, and includes a buffer that will help you survive if things go wrong.

7. Failure to show an objective 
If you're looking for investors, you have to show them a reason to invest. Make it clear in your business plan how long it will take for the investor to get their money back, and how much more you expect to make for them.

Even if you aren't seeking investment, it's a good idea to include an objective in your business plan. Do you want to grow the business and then sell it? Do you plan to expand the business and offer franchise options to others? Are you making a "lifestyle business"? If you know what you want out of your business, it's easier to measure success.

8. Failure to show real demand 
Don't make the mistake of assuming that demand exists just because you think a product would be awesome. It's important to test the demand for your product - especially if you are planning to launch a business with high start-up costs. Consider testing the product on a small scale before you pour too much money into your idea.

9. Lack of Experience 
Many new businesses fail because the person starting the business lacks the skills to run it. Be honest about your abilities. You may have a great idea for a restaurant, and you may have found the perfect premises and the best suppliers, but if you don't know anything about catering, you should seriously consider hiring someone who does.

10. Failing to update your plan
Yes, it can take a couple of years to get your idea off the ground, but that doesn't mean that you should rely on the same business plan year after year. Re-visit the plan every six months or so and update your financial predictions and competition sections. In addition, carry out new market research. Consumer tastes change, and you don't want to launch into a market that is no longer interested in your product.

Appendix

http://www.sba.gov/content/appendix

The Appendix should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but specific individuals (such as creditors) may want access to this information to make lending decisions. Therefore, it is important to have the appendix within easy reach.

The appendix would include:

• Credit history (personal & business)
• Resumes of key managers 
• Product pictures
• Letters of reference 
• Details of market studies 
• Relevant magazine articles or book references
• Licenses, permits or patents 
• Legal documents
• Copies of leases 
• Building permits 
• Contracts 
• List of business consultants, including attorney and accountant 

Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis. Remember, too, that you should include a private placement disclaimer with your business plan if you plan to use it to raise capital.

Financial Projections

http://www.sba.gov/content/financials

You should develop the Financial Projections section after you've analyzed the market and set clear objectives. That's when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.

Historical Financial Data 
If you own an established business, you will be requested to supply historical data related to your company's performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.

The historical financial data to include are your company's income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three to five years). Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.


Prospective Financial Data
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years two through five.

Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It's much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing.

Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs to your trend analysis (especially if they are positive).

Funding Request

http://www.sba.gov/content/funding-request

If you are seeking funding for your business venture, use this section to outline your requirements.

Your funding request should include the following information:

• Your current funding requirement 
• Any future funding requirements over the next five years
• How you intend to use the funds you receive: Is the funding request for capital expenditures? Working Capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section. 
• Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business. These areas are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s). 

When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. Also include the time period that each request will cover, the type of funding you would like to have (e.g. equity, debt) and the terms that you would like to have applied.

To support your funding request you'll also need to provide historical and prospective financial information.

Marketing and Sales

http://www.sba.gov/content/marketing-sales-management

Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing business-evaluation process and unique to your company. However, there are common steps you can follow which will help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty.


An overall marketing strategy should include four different strategies:

• A market penetration strategy

• A growth strategy. This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain. 

• Channels of distribution strategy. Choices for distribution channels could include original equipment manufactures (OEMs), an internal sales force, distributors, or retailers. 

• Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.   

After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.

Your overall sales strategy should include two primary elements:

• A sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will  you train your sales force? What about compensation for your sales force?

• Your sales activities. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor. 

Service or Product Line

http://www.sba.gov/content/service-or-product-line

This is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers.

What to include in Your Service or Product Line Section

A Description of Your Product/Service 
Include information about the specific benefits of your product or service - from your customers' perspective. You should also talk about your product or service's ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g. idea, prototype)

Details About Your Product's Life Cycle 
Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.

Intellectual Property 
If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as non-disclosure or non-compete agreements.

Research and Development (R&D) Activities 
Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry.

Organization and Management

http://www.sba.gov/content/organization-management

Organization and Management follows the Market Analysis. This section should include: your company's organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.

Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who's in charge, so tell them. Give a detailed description of each division or department and its function.

This section should include who's on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.

Organizational Structure 
A simple but effective way to lay out the structure of your company is to create an organizational chart with a narrative description. This will prove that you're leaving nothing to chance, you've thought out exactly who is doing what, and there is someone in charge of every function of your company. Nothing will fall through the cracks, and nothing will be done three or four times over. To a potential investor or employee, that is very important.

Ownership Information 
This section should also include the legal structure of your business along with the subsequent ownership information it relates to. Have you incorporated your business? If so, is it a C or S corporation? Or perhaps you have formed a partnership with someone. If so, is it a general or limited partnership? Or maybe you are a sole proprietor.

The following important ownership information should be incorporated into your business plan:

• Names of owners
• Percentage ownership
• Extent of involvement with the company
• Forms of ownership (i.e. common stock, preferred stock, general partner, limited partner)
• Outstanding equity equivalents (i.e. options, warrants, convertible debt) 
• Common stock (i.e. authorized or issued)
• Management Profiles 
• Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management team, so let your reader know the key people in your company and their backgrounds. Provide resumes that include the following information. 
• Name 
• Position (include brief position description along with primary duties)
• Primary responsibilities and authority 
• Education 
• Unique experience and skills 
• Prior employment 
• Special skills 
• Past tract record 
• Industry recognition 
• Community involvement 
• Number of years with company
• Compensation basis and levels (make sure these are reasonable - not too high or too low)
• Be sure you quantify achievements (e.g. "Managed a sales force of ten people", "Managed a department of fifteen people", "Increased revenue by 15 percent in the first six months", "Expanded the retail outlets at the rate of two each year", "Improved the customer service as rated by our customers from a 60 percent to a 90 percent rating") 

Also highlight how the people surrounding you complement your own skills. If you're just starting out, show how each person's unique experience will contribute to the success of your venture.

Board of Directors' Qualifications 
The major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company's credibility and perception of management expertise.

If you have a board of directors, be sure to gather the following information when developing the outline for your business plan:

• Names 
• Positions on the board
• Extent of involvement with company 
• Background 
• Historical and future contribution to the company's success