Don't Make These Common Business Plan Mistakes!

business plan mistake
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In my teaching career, I looked at many startup business plans. And many had the same errors. It seemed the new business owners had gone through my list of common business plan errors and checked them off! Here's my list, so you don't make the same mistakes.

What a Lender Wants in a Business Plan

A lender wants to know only two things:

1. How much do you want?

2. How will you pay it back?

That's it. Everything else is just fluff.

  You don't need a 200-page business plan to tell the banker this. 

Remember KISS - Keep it short and simple. Before you start, review my article on how to create a business plan step by step.

Common Business Plan Errors

In the thousands of business plans I have reviewed over the years, these are the most common errors:

Not Using Third Person.

Write as if you were not the business owner, but a hired writer talking about the business.  Saying, for example, "XYZ Corporation will open its doors on September 1, 2010...." not "We will open our doors ...."  Third person sounds more professional and business-like and banker-friendly. If you use the first person, you tend to sound like a cheerleader and less like a reasonable person. I know it seems picky; just trust me on this one.

Not Checking Numbers.

If your executive summary states you want $158,000 and your spreadsheets show you need $190,000, your banker will question your competence.

  Every number must match in every section of the business plan.  Another example, if you discuss having three employees, but your cash flow shows only salary/benefits for one, you have consistency errors. Have someone go through the plan before you send it out, just to look at all the numbers.

Not Making Sure Everything is Perfect.  

I have caught lots of typographical errors, misspellings, sentence fragments in business plans.

The plan switched fonts several times, back and forth from Arial to Tahoma.  Photos or graphs were on the wrong pages.  Having errors in your business plan sends a message to your lender that you don't care about the details.  

Being Too Optimistic.

A lender wants realistic, not overly optimistic.  For example, over-estimate your expenses and under-estimate your income.  A lender wants to see what will happen if your "worst case" scenario happens.  Use meaningful charts, graphs, financial statements, or spreadsheets to show what your cash flow will look like.  Include a break-even analysis, so the lender can see how and when you will start making a profit. Don't spend pages telling how wonderful your business it; talk about how it will provide a benefit to your customers and how it is different from the competition.

Confusing cash with profits. 

Your business can be profitable and you can have no cash. Without positive cash flow over a period of time, your business will not have solvency (ability to pay its bills) or long term viability (survival). No cash means that business loan isn't going to get paid back and you close your doors.  Show how your cash flow will support your loan payment.

Leaving Questions Unanswered. 

Don't assume your lender knows about your business.  Pretend he or she is an idiot (not necessarily untrue, in many cases), at least about the business you are going into.  Have someone who is not in your business read the business plan and ask you questions.  Then put those questions into the plan in the appropriate place.  If confused customers don't buy, confused bankers don't lend.

Not Including an Executive Summary.

Business loans often go up the line in a bank, and the higher up executives want to know the "bottom line."  Just tell them (1) A sentence or two about your business, (2) How much you need, in numbers or a simple chart, and (3) How you expect to pay back the loan.  That's it.  No more than one to two pages is all  you need.

How to Fix these Errors

Most of these errors can be resolved by having several people read your plan.

  Ask each person to review a specific item above and tell them what to look for. Get a good grammarian/writer to review the plan.  Remember, there is no second chance to make a good first impression.

Want to get started on your business plan? Check out my article about How to Create a Business Plan in 3 Easy Steps.