Every business should have a business plan. Unfortunately, despite the fact that many of the underlying businesses are viable, the vast majority of plans are hardly worth the paper they’re printed on. Most “bad” business plans share one or more of the following problems:
1. The plan is poorly written. Spelling, punctuation, grammar and style are all important when it comes to getting your business plan down on paper. Although investors don’t expect to be investing in a company run by graduates in English, they are looking for clues about the underlying business and its leaders when they’re reviewing a plan. When they see one with spelling, punctuation and grammar errors, they immediately wonder what else is wrong with the business. It suggests carelessness and a lack of attention to detail. Since there’s no shortage of people looking for capital, they don’t wonder for long – they just move on to the next plan.
Before you show your plan to a single investor or banker, go through every line of the plan with a fine-tooth comb. Run your spell check–which should catch spelling and punctuation errors, and have someone you know with strong “English teacher” skills review it for grammar problems.
Style is subtler, but it’s equally important. Different entrepreneurs write in different styles. If your style is “confident,” “crisp,” “clean,” “authoritative” or “formal,” you’ll rarely have problems. If, however, your style is “arrogant,” “sloppy,” “folksy,” “turgid” or “smarmy,” you may turn off potential investors, although it’s a fact that different styles appeal to different investors. No matter what style you choose for your business plan, be sure it’s consistent throughout the plan, and that it fits your intended audience and your business.
2. The plan presentation is sloppy. Once your writing’s perfect, the presentation has to match. Few things are more irritating to a reviewer than inconsistent margins; missing page numbers; charts without labels or with incorrect units; tables without headings; technical terminology without definitions; or a missing table of contents.
Have someone else proof read your plan before you show it to an investor, banker or other target audience. Remember that while you’ll undoubtedly spend months working on your plan, most reviewers won’t give it more than 10 minutes before they make an initial decision about it. So, if they start paging through your plan and can’t find the section on “Management,” they may decide to move on to the next, more organised plan in the stack.
3. The plan is incomplete. Every business has customers, products and services, operations, marketing and sales, a management team, and competitors. At an absolute minimum, your plan must cover all these areas. A complete plan should also include a discussion of the industry, particularly industry trends, such as whether the market is growing or shrinking. Finally, your plan should include detailed financial projections–monthly cash flow and income statements, as well as annual balance sheets – projecting at least three years. Established business must include historical audited financial statements.
4. The plan is too vague. A business plan is not a novel, a poem or a cryptogram. If a reasonably intelligent person with secondary school education can’t understand your plan, then you need to rewrite it.
If you’re trying to keep the information vague because your business involves highly confidential material, processes or technologies, then show people your executive summary first (which should never contain any proprietary information). Then, if they’re interested in learning more about the business, have them sign noncompete and nondisclosure agreements before showing them the entire plan. [Many venture capitalists and investors will not sign these agreements since they want to minimize their legal fees and have no interest in competing with you in any case.]
5. The plan is too detailed. Do not get bogged down in technical details! This is especially common with technology-based start-ups. Keep the technical details to a minimum in the main plan – if you want to include them, do so in an appendix. One way to do this is to break your plan into three parts: a two- to three-page executive summary, a 10- to 20-page business plan and an appendix that includes as many pages as needed to make it clear that you know what you’re doing. This way, anyone reading the plan can get the amount of detail he or she wants.
I’ll post mistakes 6 to 10 in a few days and follow up with some further thoughts on smoothing our the rough spots.