The Biggest Mistake in Business Planning: What You Need to Avoid

Starting a business is an exciting endeavor, but it can also be a daunting one. Crafting a well-crafted business plan is essential for any successful venture, but it's easy to make mistakes when creating one. One of the biggest errors people make in business plans is unrealistic financial projections. The assumption that a startup will immediately be profitable is often a naive mistake made by beginning entrepreneurs.

Most startups should expect to be “in the red” for at least the first year of operation. A lender will read the executive summary of your business plan and “do it through an olfactory test and then an instinctive test,” said RISBDC business counselor Josh Daly. The lender can decide whether or not to continue reading based on what your intuition tells you. Therefore, it is worth focusing on the executive summary.

Someone without deep business experience should be able to understand you and should demonstrate that your company is viable in short, clear points. Daly recommends 1 to 3 sentences each about your business experience, your customer base, the market, the competition, your qualifications, and your team. A concise summary should fit about two pages and convince your audience to keep reading. If your plan focuses on obtaining funding, potential lenders should know right away how much money you want to borrow and how the money will be used. For most small businesses, a concise, well-organized business plan should be 5 to 10 pages long.

An engaging business plan includes images, when appropriate, to avoid words when a graph, table, or map tells the story most effectively. Additional supporting financial projections or research data may be included in an appendix. Plans that are significantly longer don't necessarily provide more or better information, and they risk losing their audience before they're actually read. It is estimated that staple food prices have skyrocketed 17.5% over a period of one year. Business plans are never 100% accurate and things never go exactly as planned. Just like when you set out on a road trip, you have a plan for getting to your final destination and an idea of how you're going to get there.

However, things may change as you go, and you might want to adjust your route. The biggest mistake you can make when drafting a business plan is not having a clear business vision. There's no doubt that your strategy and ideas will evolve as you go, but spending a little time figuring out how your company works will pay dividends over time. You can work with general assumptions and compare them to competitive benchmarks to establish a reference base for your business. The bottom line is that you and your people need to collectively understand the meaning and purpose of your business and believe in it to thrive.

Keeping your plan up to date will help you set new goals for yourself and your team and, most importantly, set financial goals and budgets that will help your business thrive. If you don't have these basic knowledge, you'll show that you're not ready to launch your business. When you start a business, you probably haven't hired all the people you're going to need. Then, if they're interested in learning more about the company, ask them to sign non-compete and non-disclosure agreements before showing them the full plan. The worst business plans hide the assumptions throughout the plan, so no one can tell where the assumptions end and where the facts begin. Your business plan should only cover the highlights so that it's short enough for people to read.

The mistake people make in their business plan is not to recognize that there are still key positions to be filled. Your business plan should clearly explain who your customers are, how much they pay you, and have financial projections that show your path to profitability. The vision is a statement about the future vision of the business to be undertaken, what the objectives are and what you want to achieve later. You can also be prone to making some common mistakes that business owners tend to make in their first plan. So, whether you're drafting a plan to explore a new business idea, looking to raise money from investors, applying for a loan, or just trying to better manage your business, a solid business plan created with LivePlan will help you achieve that.

One of the most common mistakes new entrepreneurs make when drafting a business plan is underestimating or simply not identifying their competition. If you don't take the business planning process seriously, you'll show that you don't really care about your business and that you haven't really thought about how it's going to succeed. Your strategy and ideas will evolve as you go but having an understanding of how your company works will pay dividends over time.