If you’ve heard it once, you’ve heard it a hundred times: When you’re starting a new business, you need to write a business plan. But what goes into your business plan and how do you make sure that it is going to be an effective tool? Let’s take a look at some big mistakes that can really screw up a business plan, and how to make sure you don’t fall into the same trap.
Confuse Profit With Cash
When starting a new business, many entrepreneurs focus on the cost of making a product or running a service, how much it can sell for and what that leaves in profit after expenses. This is all well and good, and would be fine if the Profit & Loss was king, but it isn’t the way that business survive day to day. On a daily basis you don’t spend profits, you spend cash, and these are not the same thing. Make sure you understand the cash flow of your company in order to get a better sense of how your business is actually going to succeed. The best laid plans have died because there wasn’t enough liquidity in the business.
Overemphasizing the details
Writing a business plan is the best way to give you a general sense of how your business is going to run. The key word here is general. Too many people stick to their business plans too tightly, failing to leave any room for change. In today’s world of lean business, adapting to change and, in fact, looking for ways to change, is crucial. Use your business plan as a guide but realize that it’s subject to change at any point along the way.
Be too vague
Although you should look at your business plan as a guide, this doesn’t mean that it shouldn’t have concrete, specific objectives. It only means that you should be willing to adapt these to your current circumstances in a way that moves the business forward. Setting wishy-washy goals and methods of getting there is a recipe for disaster.
Try to be everything all at once
Many companies are afraid to commit to a singular identity. This means that, instead of capitalizing on their ability to stand out and brand themselves as X, they are flailing around and diluting their efforts in trying to be W, X, Y and Z. Seasoned investors want to see a focus and a strategy. They want you to have a single product and a single market and to know both through and through. Staying focused will help you develop a compelling story for your business that won’t fall apart by the end.
Forget about your competitors
You might think that you are creating the first product or service of its kind. But no matter how close to the truth that might be, there are still going to be people you’re in competition with. Think outside the box on this. If you’re selling a revolutionary kind of camera, you’re competing with older cameras that people trust. Being aware of your competition is not something to fear, it’s something that will give you more power in the long run.
Make it novel-length
Let’s face it, business plans are pretty boring. Unless you are involved in the company (you) or you stand to make a ton of money on it (investors), no one is going to want to read even a page of it. Do your investors a favor and don’t turn it into an epic 18th-century novel length plan. Keep it short and concise, under 30 pages for sure and erring toward 20. You can write a longer one for yourself but when it comes to investors, pare it down to the basics you can always offer more information after their initial read-through.