The biggest mistake people make when drawing up a business plan is writing it purely to raise financing. A business plan is something you should do even if you don’t need financing, and just as market conditions change, you should review it every 6 or 12 months, adapting it to the new situation of your business and/or market.
The most common mistakes made when drawing up a business plan
1. Not making a realistic business plan
Going back to the point above, most of the time entrepreneurs estimate the business’s future income on the high side and its expenses on the low side, with the idea of presenting the plan to a bank or a group of investors to obtain financing.
The usual advice is to make a second business plan, which must be realistic, so that we don’t fool ourselves. In that second plan we should set out the worst possible scenario, estimating income on the low side and expenses on the high side, because as you go along things will probably turn out that way, so you should already have allowed for that scenario.
You have to be objective. Many entrepreneurs realise their business isn’t viable once they draw up the business plan.
2. Not being clear about goals and deadlines
Starting a business takes passion, but that passion can distort reality. We shouldn’t be negative, but optimism sometimes comes close to naivety, to the point of thinking the business will be profitable in three months and that we’ll make a profit in the first six months. That rarely happens.
The first thing is to know precisely how much capital reserve you need so you won’t have trouble making payments for a given period if income is slow to arrive.
Second: long-term goals are clearly necessary, but sometimes the road seems too long, so it’s a good idea to set ourselves small, very short-term goals. That way, as we reach them, they’ll keep us motivated along the way. Doing a SWOT analysis is recommended.
3. Making a business plan without having studied the market
We need to know the market, our industry and our competitors, but some entrepreneurs forget the most important thing: our future customers. Basically, we need to know why customers would buy from us rather than from the competition. Here we offered 15 questions to assess a business idea.
4. Avoiding risks
Starting a business means taking risks, and however much you rack your brains, you will never be able to avoid certain risks. They will always be there. Accept them, understand them and manage them. That said, the business plan should help us recognise what is a calculated risk and what would be recklessness in running our business.
5. Underestimating your competitors, however small
Once we’ve found the courage to start a business and we’re “motivated and raring to go”, something called “arrogance” tends to appear, and you start hearing phrases like “That guy doesn’t know what he’s doing; just wait until we open.” Always remember that if your competitor is open, whether it’s doing better or worse, it’s competition. Don’t be arrogant and don’t ignore them, because like it or not you’ll be sharing the pie with them. So study your competitors: they are the best source of information on what works and what doesn’t, as well as on prices, products and services.
See also: How to choose the ideal name for your business: ideas, tips and mistakes to avoid
6. Not listening to second opinions
You need to present your business idea to someone else, although among your friends and family you will always find two kinds of people: the ones who see everything in black, and the ones who would cheer you on even if you told them you were going to jump out of a plane without a parachute. Try to find someone objective who will give you their opinion. That opinion shouldn’t be decisive, but it’s always worth hearing.
And remember that you should be able to explain your business idea in less than 60 seconds; if you can’t, you probably don’t have a business.
7. Not having an exit plan
We should always expect the unexpected, so knowing how to get into a business is just as important as being able to get out with limited damage. Be careful about whom, or what, you put on the line to get access to financial resources. Sometimes you have to act as if you were investing in the stock market: if you buy a share thinking it will go up and it does the opposite, you have to get rid of it. If the business doesn’t work as you planned, don’t wait to pile up more debt: close it.
8. Bringing the wrong person into your business
We’ve said before that the ideal number of people to start a business with is an odd number lower than two. Even so, for whatever reason (usually financial), we often team up with another person. At first it’s all excitement and good vibes; in the end, as a rule and in most cases, one of the two is surplus to requirements. Here are 10 tips for choosing a partner for your business.
Last but not least, when it comes to looking for financing there is a serious mistake: thinking that the business plan is everything as far as investors are concerned.
A business plan is to an investor what a CV is to an interviewer. In any kind of interview, the person says much more than a piece of paper.
Further reading
Featured image: Wikimedia Finland, CC BY-SA 2.0, via Wikimedia Commons.
.jpg){kind=link}