Common Mistakes in a Business Plan
A business plan can typically have different uses, like to obtain funding from investors, or to increase business efficiency. Irrespective of the use, a business plan needs to be well drafted in order to serve its purpose. From an investment perspective, while a well drafted business plan cannot guarantee funding, it certainly improves the chances of getting funded. It is to be noted that a funding decision encompasses a host of other things, not to mention the requirement of a high quality business plan.
An unstructured business plan not only makes a venture unattractive for external investors, if used as a project management tool internally, fails to provide direction to a business. The question is what constitutes a perfect business plan. Unfortunately, there is nothing called a perfect business plan, it depends on a host of related aspects which when consolidated together completes the jigsaw. External factors also play a very important role in the viability of a business proposition. However, there are specific features within a business plan which are mission critical and these needs to be looked into closely.
We at BPlanExperts based on our experience of reviewing a large number of plans, believe that weaknesses in business plans can be clustered into key segments. While these are not absolute in nature, they give a flavour of where business plans often go wrong.
Lack of structure – A business plan needs to follow a basic structure to include a company overview, details about the products and services being offered, the business model, the marketing strategy, operations strategy and profile of the people who will manage the business. All of the above needs to be backed by solid market research covering the industry, the market and potential competitors. A well-defined structure paints a comprehensive story and helps the reader to understand and analyze a business in greater detail.
Low understanding of the business– The essence of a business has to be reflected in a business plan and match how the founder perceives it. Often there is a gap between what comes out in a badly drafted plan and the true vision of a venture. This leads to ambiguity and pushes an investor away. Also, in the event of the business plan being used internally, stakeholders get confused, leading to low buy-in and ROI levels. It is essential to get a deep understanding of the business and articulate it in a document.
Ignoring market research– It is important for every entrepreneur to have an in-depth understanding of the market in which the business will operate. Research the market, analyze what competitors are doing and draw on trends to set expectations for your business. Do not get swayed by what you hear on the street. Get it verified through strong analytics and analysis. At times business plans are limited to a one pager research, which states that the biggest names in the specific industry are growing, hence there is a great market potential. Do not stop there, get an extensive analysis done and then formulate your business strategy.
Incomplete financials – Forecasts are one of the most important sections of a business plan, where investors analyze the financial viability of a business and decide on how their investments will be paid back. It helps them to assess the overall risks associated and the long term sustainability of a business. Ensure that you can balance the books and the format being used follows best practice norms. A business plan may end up in any part of the world, hence standardization is essential.
Over the top projections – While every entrepreneur thoroughly believes in their business idea, some randomly value the potential at excessive levels. This often leads to an expectation mismatch. Be realistic, understand that comparing valuations against well-known and established brand within the same domain might be a little ambitious while staring off. Analyze the market and forecast numbers that can be substantiated. Investors understand the potential value of an opportunity. However, do not hesitate to argue your case if you believe the business is being undervalued.
Underplaying the team– It is often said that money is invested in people rather than just the idea. This aspect needs to be highlighted in great detail. Do not hesitate to flaunt your management team’s capability. If they have unique skills or bring in loads of experience capture it. Highlight your domain skills and ambition, technical expertise and ability to get a job done. After all an organization is a synergy of the people that work in it.