Writing a business plan is never easy. To guide you we put together this exhaustive list of errors to avoid in your business plan.
Now let’s get down to it. Here are the 69 mistakes not to make in your business plan.
Mistakes regarding the process of writing your business plan
- Underestimating the time required to write a business plan
- Spending too much time on your business plan
- Not considering the long-term operational risks
- Not defining milestones when raising capital
- Withholding information from, lying to investors or trying to hide risks
- Not asking people outside of your industry to read your business plan
- Copying and pasting a business plan template you’ve found online
- Making the business plan too vague
- Not tracking your business’ progress frequently against your plan
- Not getting the whole team involved in the business plan writing process
- Not anticipating any queries the reader may have concerning the plan
- Underestimating the legal or regulatory risks related to your industry
Frequent mistakes in the executive summary
- Writing an executive summary that is too long or not catchy enough
- Not specifying your funding requirements in the executive summary
Classic errors regarding the presentation of your team
Mistakes made on the market research and strategy
- Not explaining the opportunity from the customer's point of view
- Relying on a single source of macroeconomic statistics for all your market research data
- Poorly defining the market
- Not showing differentiation from your immediate competitors
- Not anticipating how competitors will react to your entry into the market
- Not having a distribution strategy
- Not knowing your competitors
- Not analysing your competitors
- Basing your business model on tax advantages
- Not having priorities
- Not explaining the business model
- Not knowing your consumer archetype
Forecasting mistakes in the financial part of the business plan
- Taking a top-down approach to forecast sales
- Underestimating seasonality
- Underestimating working capital
- Showing a loss-making business plan
- Showing a profitable business plan but a cash deficit
- Include 50 financial ratios
- Not including a break-even calculation
- Overestimate sales ramp-up
- Do not take into account the production capacity of the company
- Do not take into account the volatility of raw material prices
- Not showing a burn rate
- Failing to justify financial assumptions
- Forgetting or underestimating maintenance
- Underestimate staff resources
- Have a plan with little room for manoeuvre
- Incomplete financial information
- Failing to comply with accounting standards
- Focusing on profit and not cash flow
- Making a financial forecast using assumptions that cannot be easily measured
Common rookie mistakes regarding the formatting
- Not sending your business plan as a PDF
- Not paying attention to formatting
- Not taking care of the spelling
- Making the plan too long
- Having inconsistent figures in the plan
- Getting lost in the details
- Not following a logical order
- Not citing sources
- Not using software to write your business plan
- Being too repetitive
- Not including your contact details in the plan
Errors when approaching financial partners
- Not adapting your business plan to the person you are dealing with
- Sending a business plan that is simply based on an idea
- Showing a plan without personal investment
- Not knowing your figures
- Not being ready to take the next step
- Underestimating the time needed to raise funds
- Sending your business plan by email to someone who has never heard of you
- Offering a valuation without firm commitments from other investors
- Requesting a confidentiality agreement before sending your business plan
- Not having an exit strategy
- Plan to distribute 100% of net income
Mistakes regarding the process of writing your business plan
The first set of mistakes that we are going to look at is related to the process adopted by many to write a business plan.
Mistake 01 - Underestimating the time required to write a business plan
Don’t leave it to the last minute: it’s important to understand that writing a robust and convincing plan will take at least a couple days to put together.return to list
Mistake 02 - Spending too much time on your business plan
It’s important to strike the right balance, though. Rather than locking yourself up for two months to write your plan, make sure you set aside some time to get out there and meet your potential customers and refine your business model.
Because your business is constantly evolving, a perfect business plan simply doesn’t exist. Pen down the main points of your strategy and then start executing your plan. Make sure you frequently check back on it and make adjustments where necessary.return to list
Mistake 03 - Not considering the long-term operational risks
One of the main reasons for writing a business plan is to prove to investors that you can manage risk, kicking off with the operational risk of your business.
Operational risk will be at its highest during your first few months of trading. At this point in time, you don't have a strong customer base and so there's no guarantee that your concept will be successful.
So even if you think big, start small. It might be a good idea to outsource as much as possible so that you can focus on attracting customers and minimise your break-even point by reducing fixed costs.
For example, it doesn’t make sense to hire an in-house marketing team in the first few months of your business’ operation because if the demand isn’t quite yet up there, you’ll just end up with more fixed costs (staff costs) leading to a higher operational risk.
It’s much better to use a marketing agency at the beginning so you can halt the service if the demand isn’t there, or bring the team in-house once there is sufficient demand for your product or service.return to list
Mistake 04 - Not defining milestones when raising capital
This error is especially related to startups that are in a classic venture capital fundraising pattern:
- 1st round with family and friends (the famous FFF: Friends, Family & Fools)
- 2nd round with some business angels
- Seed round with specialised funds
- Series A
- Series B
- And so on.
If you know in advance that your business will require several rounds of investment, clearly identifying your business’ key milestones will help you make a stronger impression on investors.
This is because it enables them to make a critical judgement on your objectives and gives them a clearer picture of how far you have to go before they can exit, reinvest or become diluted.return to list
Mistake 05 - Withholding information from, lying to investors, or trying to hide risks
The only way an investor or banker will agree to fund you is if you have integrity.
There’s no shortage of businesses looking for funding, so if an investor or banker realises that you’ve been dishonest or embellished your business plan at all, they will flat-out refuse to fund you.
If you’ve ever watched Dragons Den or Shark Tank, you might’ve picked up on the fact that investors get particularly annoyed when entrepreneurs claim they have a patent when the patent is, in fact, still pending.return to list
Mistake 06 - Not asking people outside of your industry to read your business plan
Whether it’s an investor or a bank reading your plan, they’re unlikely to be an expert in your industry. No matter how hard you try to avoid using confusing jargon, there will probably still be one or two sections in your business plan that are a little difficult to understand.
Asking someone who knows nothing about your sector to proofread your plan is the most effective way of ensuring that every bank or investor you come across will understand your plan from start to finish.return to list
Mistake 07 - Copying and pasting a business plan template you’ve found online
When you consider the hours saved on market research and creating a financial forecast, it seems like a tempting option.
Unfortunately, the market analysis included in the template is unlikely to be relevant for your local target market.
And the template’s financial forecast will reflect the distinct financial choices made for that company, which might be very different from your own (for example, taking out a lease on equipment rather than buying it).
You’ll have the burden of proving to the reader that your forecast is credible. By coyping a template, you run the risk of having the banker or investor find out that you’ve neither carried out careful market research nor taken the time to create a financial forecast that truly holds up.return to list
Mistake 08 - Making the business plan too vague
Equity investors don’t sign confidentiality agreements. Because of this, many entrepreneurs tend to send across plans that are quite vague so as to not risk having any of their trade secrets spilt.
This is, however, a bad idea. The whole point of a business plan is to help the investor understand the ins and outs of your business model, with details specific enough to convince them you’ve really thought it through and it's worth investing in.return to list
Mistake 09 - Not tracking your business’ progress frequently against your plan
This mistake is more closely related to the use rather than the creation of your business plan.
Disregarding your business plan once you’ve been written is a big no-no. This is because it’s actually once the plan has been written and your business is in operation that your business plan truly becomes useful.
The business plan serves as a roadmap for executing the entire strategy you’ve just put down on paper. You and your investors will want to look back at it from time to time to check that you’re still on the right track, take a step back and set new goals.
From a financial perspective, this forward-looking approach will only prove beneficial, so long as you take the time to compare the actual performance of your business with your expected performance, and then draw a brand new projection that’ll enable you to identify a specific need for funding or to plan an investment.return to list
Mistake 10 - Not getting the whole team involved in the business plan writing process
It’s important to 'get the whole team involved' when writing your business plan. The sales forecast should be developed under the guise of the sales manager while the HR manager should be in charge of the recruitment plan.
Doing so is likely to make your business plan more accurate as each part has been written by a department specialising in that topic.return to list
Mistake 11 - Not anticipating any queries the reader may have concerning the plan
Sometimes you come across business plans that ask more questions than they answer. Try to put yourself in the shoes of the investor or bank, anticipate as many questions as possible and then answer them in your plan.
It’s also helpful to include a section that specifically lists the major risks related to your industry and business model to show that you’ve carefully considered them and how you’d deal with them should they occur.return to list
Mistake 12 - Underestimating the legal or regulatory risks related to your industry
It’s good practice for companie which operate in R&D intensive industries to include a section on intellectual property to reassure the investor.
You want to avoid a situation where there is a doubt on who owns the intellectual property rights for a key part of your business. For example, if you're an early stage technology startup which outsourced the creation of their prototype, make it clear who owns the source code of the application.
It’s also useful to include a section on the regulations applicable to the business in the business plan to show you’ve covered all bases and own all the required permits and licences to operate lawfully.return to list
Frequent mistakes in the executive summary
The executive summary is the most important part of a business plan. It’s also the one you’ll write last, as it’s intended to summarise your business plan.
Mistake 13 - Writing an executive summary that is too long or not catchy enough
The executive summary is to an investor what a CV is to a recruiter.
It takes just 30 seconds of looking at a CV for a recruiter to decide whether they want to know more about the candidate or not. Considering they often receive hundreds of applications for a job, it’s pretty handy.
The same goes for investors: they're often inundated with hundreds of business plans. The best thing you can do is provide an executive summary that will enable them to decide within five minutes whether they want to know more about your business or not.
Your executive summary should, therefore, be short and catchy. Making it too long creates the risk that the investor won’t read it in its entirety, and will simply move on to the next one. Apply the same rule as for your CV: 1 or 2 pages maximum.
You’ll need to invest time into making your executive summary sound compelling. This is a surefire way to make your business plan stand out from the dozens of others the investor is dealing with.return to list
Mistake 14 - Not specifying your funding requirements in the executive summary
Investors have specific investment criterias in terms of minimum amount, sector and geographies they invest in. If you don’t specify your financing requirements at the end of your executive summary, the investor won’t be able to determine whether it matches their criteria.
You then run the risk of them moving on to the next business plan: no one wants to read over 20 pages only to find out that the funding requirement is too small.
The same applies if you are looking for a bank loan: the amount of financing you’re looking for will determine how the banker reads your business plan. So it's important for the reader to get clarity on this as soon as possible.
If you are asking for a small amount - say a $5,000 overdraft line for example - they might skim through your plan. Whereas if the amount is more significant - say you need $1,000,000 to finance stocks - they will pay closer attention when reading your plan.return to list
Classic errors regarding the presentation of your team
This is a crucial part of the investment decision, so make sure this section gets special attention.
Mistake 15 - Understating the quality of your management team
When assessing whether to provide funding for a business start-up, investors and banks have little data to guide their decision. As a result, the quality and expertise of the team can play a significant role in the choice of whether to grant funding or not.
Ensure you present your team clearly in the plan by emphasising their knowledge of the market, industry expertise, past successes, and their ability to adequately manage the business.return to list
Mistake 16 - Not addressing skill gaps in the team
If you’re missing a key skill in the team, you should anticipate questions from investors regarding this gap and the steps you intend on taking to fill it, whether that be via recruitment, using an external consultant, or asking board members to help with the issue.return to list
Mistakes made on the market research and strategy
This is the heart of your business plan: in these sections you’ll demonstrate that there is an opportunity to be seized on the market, and convince readers that your strategy will prevail. Let’s look at the mistakes to avoid here.
Mistake 17 - Not explaining the opportunity from the customer's point of view
Too often in business plans the presentation of the company’s products (or services) is reduced to a mere description of the features offered by this or that product.
Investors, or bankers, want to know whether there’s a market for your products. A list of features doesn’t help answer the question.
For example, if you were Instagram in their early days, and made the point that your app allows users to take photos from a mobile and personalise them with a filter, investors would probably have said something like: ‘Yes, more and more people may be taking pictures with their phones, but there are already solutions that seem to work well.’
So how do you make it work?
Present your products and services in three points:
- What are the main problems facing your target customers?
- What is the solution?
- What are the benefits of the solution?
Example for Instagram:
- Problem: people were taking increasingly more photos on their phones but most of the pictures looked the same. Unless you went out of your way to edit the image with Photoshop the quality of the picture was pretty average
- Solution: a smartphone app that allows anyone to apply a filter and turn an average-looking photo into a work of art within minutes
- Benefits: quick to use and no need to learn Photoshop to make pretty pictures
Mistake 18 - Relying on a single source of macroeconomic statistics for all your market research data
To be credible, the market research in your business plan ought to be based on tangible facts, not just macroeconomic statistics.
In most cases, it’s possible to get out there and meet potential customers to check the demand is there and at what scale.
Here are a couple examples of actions you can take to refine your market research:
- Take some time out to record a day’s footfall on the street your business will be located
- Hire a stall at a local market to test the level of interest in your product
- Offer to let someone test your prototype in exchange for an Amazon gift voucher
Mistake 19 - Poorly defining the market
There are many advantages to having a large market, but that doesn’t mean you need to quote the biggest number possible.
A local pub will never capture a significant share of the national market, so there’s no need to define your market in this way.
Instead, try estimating the addressable market within reach of your business, so you can realistically assess its profitability potential.
If you're making a business plan for a company with the potential to grow considerably you can break down the market using TAM SAM SOM.return to list
Mistake 20 - Not showing differentiation from your immediate competitors
Your competitors are already established in the marketplace, with a loyal customer base, an established reputation, and (likely) superior financial resources.
In this context, it is tricky for a new entrant to gain significant market shares, unless they offer something extra or distinct from what already exists.
It is, therefore, important to demonstrate that your products or services are either superior or address a radicaly different customer profile in order to convince investors that you stand a chance against your competitors.return to list
Mistake 21 - Not anticipating the reaction of competitors to your entry
No one likes to see a new player burst in and disrupt the market, so it’s pretty likely that your competitors will do everything within their power to try to take you out.
This is where the competitive analysis section of your business plan comes in handy. It lets you anticipate the possible reactions of your competitors so you can assess whether there’s a serious risk that you’ll be blocked from entering the market altogether.
Here are some examples of measures that might be taken to block your way:
- Setting a price barrier: competitors which have reached economies of scale which you’re not quite yet at enjoy a lower production cost. They may well decide to leverage their advantage and lower their prices to try to block you. They might lose margin in doing so, but you’ll be forced to sell at a loss to gain market share.
- Lobbying or trying to get laws passed: Tesla experienced this first hand, dealerships used the full legal arsenal at their disposal to try to prevent Tesla from selling its cars directly to consumers.
- Buy a key supplier to deny you access to raw materials
- Buy a key distributor to restrict your access to the market
Mistake 22 - Not having a well-thought-out distribution strategy
Go to market and how you distribute your products are key factors in the success of your future business. The person reading your business plan, therefore, expects you to have a clearly defined strategy.
Too often business plans only list potential distribution channels. Listing the 20 possible distribution options isn’t really putting a strategy in place. It’s much better that you take the time to pick specific ones that are the best fit for your business.
You should consider:
- The opportunity: how many potential customers can you reach? Who will you be competing with within the distribution channel?
- Cost: what will the margin be? How much of the budget will be allocated?
- Logistics: who will be in charge? How will you get access to the distribution network? How will you deliver the goods?
- Payment terms: how fast will you get paid by resellers?
Mistake 23 - Not knowing your competitors
“We don’t have competition.” This mindset simply isn’t true. Regardless of how effectively or innovatively your product or service solves a problem, there is most likely at least one other way out there to solve the same problem.
So do your research. Explain the problem you’re solving and how your potential customers are doing right now, and it’ll soon become quite clear who your direct and indirect competitors are - because whether you like it or not, they are out there.return to list
Mistake 24 - Not analysing your competitors
Listing the name of a company with its address listed underneath is not a competitive analysis.
Every business plan should include a detailed outline of each of your competitor’s market positioning. You should then list the strengths and weaknesses of your offering in comparison.
The following is a non-exhaustive list of factors to consider including:
- Products and services offered
- Targeted customer segments
- Distribution strategy
- Number of employees
- Number of sales outlets and locations
- Production capacity
Mistake 25 - Basing your business model on tax benefits
If you are benefiting from a subsidy or tax advantage upon start-up or on a permanent basis (subsidies for your products because of government incentives, tax-deductibility of your services for your customers, etc.): the sustainability of your business may be jeopardised by a change in legislation.
One of the main risks in your business plan will be the removal of this benefit and you should address this in the business plan.
If the benefit is temporary or exclusive (e.g. reduced taxes for 2 years) you need to show that your business model also works without the benefit.
If the advantage is "permanent" and concerns the whole sector - a subsidised tariff for 10 years for example - you must analyse the impact of a change in regulation on the sector, anticipate the reaction of your competitors, and demonstrate the company's ability to remain viable.return to list
Mistake 26 - Not having priorities
When you run a business you need to be active on several fronts, so it’s important to use your time wisely. If not, you risk 'spreading yourself too thin' and not being able to take effective action.
The person reading your business plan expects you to have a solid plan. This means you’ll have taken the time to identify and prioritise the most important actions that’ll propel your business forward.
If your plan doesn’t present obvious objectives or, conversely, if it presents an endless list of objectives for the first year, then you risk giving the investor the impression that you aren’t sure where you’re headed.return to list
Mistake 27 - Not explaining the business model
It’s not enough to explain the benefit of your products and services to the consumer, you also need to explain your business model (i.e. how you intend on making profits).
If you’re a cosmetics company that sells razors, for example, you could explain that you sell the razors at cost and make money on the sale of the blades.return to list
Mistake 28 - Not knowing your ideal customer profile
No product or service can appeal to absolutely everyone, no matter how good they are. If you haven’t identified your ideal customer profile, you risk wasting time and money acquiring customers who aren't a good fit.
It’s reassuring for a banker or investor to know that you’ve carefully thought about who falls within your target market, and that you’ll initially focus your marketing efforts on attracting that specific group - even if it means widening your target later.
Two successful examples of fine-tuned targeting are Facebook and Tinder. Both started by gaining a high number of users on university campuses before expanding to other groups within society.return to list
Forecasting mistakes in the financial part of the business plan
This is the section that many find most difficult. Take heart, follow your common sense and the tips listed below and you should breeze through it.
Mistake 29 - Taking a top-down approach to forecast sales
There’s only one way to make a good sales forecast: use a bottom-up approach and then validate the forecast using the top-down method.return to list
Mistake 30 - Underestimating seasonality
If your business is exposed to seasonality (annual closure, or a peak in sales at the end of the year, for example), the impact of this on both sales and working capital should be taken into account in the forecast to anticipate any cash flow problems.return to list
Mistake 31 - Underestimating working capital
When the working capital requirement (WCR) is positive, the growth of the company leads to an increase funding requirements.
Underestimating the impact of WCR in your business plan can lead to a liquidity crisis (cash shortfall) for the company. It is therefore important to think about this beforehand.return to list
Mistake 32 - Showing a loss-making business plan
No one wants to invest in or lend to a business that looks likely to stay loss-making for a prolonged period of time.
Your business plan should show and justify breaking even within 3 years.return to list
Mistake 33 - Showing a profitable business plan but a cash deficit
Your initial financing plan should be adjusted to present a business plan with sufficient capital over the duration of the plan.return to list
Mistake 34 - Including 50 financial ratios
Whilst there are plenty of financial ratios available for you to use, it's best to list the ones that are most relevant to your business.
Here is a list of ratios frequently used by professional investors that can be adopted for almost any type of business:
- Sales growth: [SALES (N)/SALES (N-1)] - 1
- EBITDA margin: EBITDA / sales
- EBITDA to cash conversion rate: EBITDA / Operating cash flow
- Investment rate: Capital expenditures / Sales
- Rate of obsolescence of the productive assets: tangible fixed assets / Depreciation and Amortization
- Debt coverage: Net debt / EBITDA
- Interest coverage: EBITDA / Interests
- Financial leverage: Net debt / Equity
Mistake 35 - Not including a break-even calculation
When starting a new business, breaking even is priority number one.
Your sales forecast is probably a bit optimistic and there’s a good chance that you won’t reach your sales target.
Knowing your break-even point, i.e. the minimum volume of sales needed to cover your fixed costs and thus make a profit, allows the investor or banker to make a more accurate estimate of the operational risk of your business. It also allows you to reassure them that you have a good understanding of your cost structure.
The idea is that if you miss your sales target but still manage to break even, your business should survive. Then you can put in place a growth plan and capital structure to sustain the business, pay off your creditors, and create value for your shareholders.return to list
Mistake 36 - Overestimating sales ramp-up
If your business plan is for a start-up, chances are that it will take some time to reach cruising speed.
Your business plan should therefore be robust enough to allow you to cope with a turnover that takes longer to take off than you initially anticipated.return to list
Mistake 37 - Not taking into account the company's production capacity
If you have 40 hotel rooms, you can't sell more than 40 nights per day. This may seem obvious, but it is a common mistake even at a very high level.
Make sure you check that your sales or production volume doesn’t exceed the production capacity of your company.return to list
Mistake 38 - Not taking into account the volatility of raw material prices
If your business is highly dependent on the price of certain highly volatile commodities - such as chocolate for a biscuit company, or petrol for a taxi operator - your financial forecast should include a sensitivity analysis showing the financial impact of a rise or fall in the price of the commodities on the company's cash flow forecast.
This will allow the investor or banker to properly analyse the operational risk of the business.return to list
Mistake 39 - Not showing a burn rate
If you’re sending your business plan to an equity investor when your startup is not yet profitable, it is important to put the amount of money you are looking to raise into perspective with the burn rate: i.e. the average cash consumed each month by your company.
This way the investor knows that with the money raised you will be able to last (x) months (this is what we call the runway), during which you will have to reach your break-even point or the development stage triggering the next round of fundraising.return to list
Mistake 40 - Failing to justify financial assumptions
You must systematically list the source of each financial assumption so that the banker or investor can verify its accuracy, or consult an expert if they suspect that your source is unreliable.return to list
Mistake 41 - Forgetting or underestimating maintenance
Remember to take into account the maintenance costs of your equipment and properties. These include scenarios such as:
- Vehicle maintenance
- Maintenance of tools
- replacement of broken glasses for a bar
Mistake 42 - Underestimating staff resources
It's likely that you'll have to fulfill many roles during your first few months of trading. You will, however, probably need to start recruiting at some stage to handle the increase in business activity. This eventual need for more staff should be factored into your business plan.
A common mistake in business plans for tech companies is to underestimate the staffing requirements for tech maintenance and after-sales service. So if this applies to your industry, you’ve been warned!return to list
Mistake 43 - Having a plan with little room for manoeuvre
Although you may reckon you’ve taken a fairly conservative approach to your sales forecast, both banks and investors are likely to find it very optimistic.
As a result, they will simulate the financial impact of a scenario in which sales are lower than expected. Your financial forecast must, therefore, have room for manoeuvre and reassure bankers that you won’t go bankrupt, even if sales fall lower than expected, and convince investors that they will still make a positive return on their investment.return to list
Mistake 44 - Having incomplete financial information
At the very least, your business plan should include an income statement, balance sheet and cash flow forecast to enable the investor or bank to check the consistency of the figures and calculate the ratios required for the financial analysis of your plan.return to list
Mistake 45 - Not holding up accounting standards
The financial statements in your business plan must be in accordance with the Generally Accepted Accounting Principles (or GAAP) of the country your business is operating in. You can check the applicable GAAPs for different countries here.return to list
Mistake 46 - Focusing on profit and not cash flow
The survival of your business depends on its ability to generate cash. Your business plan should therefore focus on this rather than solely on your ability to generate profits.return to list
Mistake 47 - Making a financial forecast using assumptions that cannot be easily measured
The assumptions used to construct the financial forecast should be easily measurable so that you (and the investor) can later analyse where the discrepancies between the business plan and the company's actual financial performance come from. You can then adjust the initial plan to obtain a new, more accurate financial forecast.return to list
Common rookie mistakes regarding the formatting
Mistake 48 - Not sending your business plan in PDF format
It might sound silly, but all it takes is for your file format to be unreadable by the person you’re pitching to for your plan to be cast aside.
You are probably better off sending your business plan in PDF format to reduce the risk of this happening.return to list
Mistake 49 - Not paying attention to formatting
As David S Rose, a venture capitalist, says: “If you can’t make a clean document how do you expect me to believe you’ll be able to run a business?”return to list
Mistake 50 - Not running a grammar check
Whilst some investors will not penalise you for a spelling mistake, others might view it as a deal-breaker. So it’s important to proofread your business plan before sending it off to ensure it’s error-free.return to list
Mistake 51 - Making your plan too long
Even if your business model is exciting and your plan well-written, no one has the time to read a 130-page business plan. Get to the point, and consider putting non-essential materials in appendices.return to list
Mistake 52 - Having inconsistent figures in the plan
If you say your business will make £150k EBITDA next year on one page and then £270k two pages later, investors would likely be very cautious about the accuracy of your plan and in most likelihood stop reading further.return to list
Mistake 53 - Getting lost in the details
Indicating that you’ll need, say, three full-time salespeople because your shop will be open Monday to Saturday from 8 am to 9 pm is helpful because it lets the investor see the justification for hiring that many staff.
If you then spend 5 paragraphs explaining the exact hours each member of staff will work and when they take their lunch, you’re wasting the investor’s time.return to list
Mistake 54 - The plan does not follow a logical order
It’s difficult for a banker or investor to tell whether your sales forecast is realistic if you haven’t first laid out your market research for them.
It’s important, therefore, for your plan to follow a logical order. If you’re not sure how to structure your plan, check out our standard business plan outline.return to list
Mistake 55 - Not citing sources
The figures and reports used in your market analysis should all be referenced, as the investor will either check their accuracy or consult an expert if he has doubts about the reliability of your sources.return to list
Mistake 56 - Not using software to write your business plan
The formatting of a business plan is crucial. Don't waste hours formatting your plan using Word when a business plan software can just do it for you. This is time that can be better spent elsewhere.return to list
Mistake 57 - Being too repetitive
It’s more likely for your business plan to be skim-read than read in full, but that doesn’t mean you need to repeat the same points over and over.
Another tip: your business plan is not an ad, so don’t repeat your slogan 100 times - this is more annoying than anything else.return to list
Mistake 58 - Not including your contact details in the plan
The investor has printed your business plan and is interested in meeting you. But here's the thing: you only included your contact information in the email that accompanied the plan.
They search their overflowing mailbox but can’t find you because the email subject and attachment are simply named ‘business plan’, like the 300 other messages in his inbox. Too bad, right?
Okay perhaps a slight exaggeration, but you get the idea: accelerate your chances of success by making the investor’s life easy. Ideally:
- The subject of the email/name of the attachment: [Company name] - business plan
- Email signature: your full name, company name, address, and phone number
- Business plan: put your contact details either on the cover or at the end of the executive summary (ideally just after specifying how much money you’re looking to raise)
Errors when approaching financial partners
This section deals with errors and blunders related to how to tailor the business plan to the right person or to approach an investor.
Mistake 59 - Failing to adapt your business plan to the person reading it
A banker’s situation is very different from that of an equity investor.
A banker has limited earning potential on the loan (the interest), certainty on future cash flows (the loan schedule), and limited risk (they comes before the shareholders in the case of bankruptcy).
The equity investor, on the other hand, is in a completely different position. They have unlimited potential gain (when they resell their shares or receives dividends), total uncertainty as to the date of receipt of these potential cash flows (the resale of the shares is not likely to take place immediately and the possible payment of dividends will depend on the company's profits), and maximum risk in the event of bankruptcy (they come last).
As a result, you should not approach a bank in the same way as you’d approach an equity investor and your business plan should be adapted to the situation.return to list
Mistake 60 - Sending a business plan based simply on an idea
No one is going to write you a cheque simply on the basis of an idea. At the very least, you need to be able to demonstrate sufficient interest in your product or service from potential customers (perhaps by asking a few to pre-order) and, if possible, a prototype and evidence of a growing email list or volume of orders).return to list
Mistake 61 - Presenting a plan without personal investment
It’s important for the bank and investor to see that you’ve made a substantial personal investment in your business.
By funding your business, investors are putting themselves at risk of making a loss. To assure them that you’ll do everything possible to make your business succeed and balance the scales a bit more, you must also have something to lose in the process.
Your business plan must, therefore, include a personal investment.return to list
Mistake 62 - Not knowing key numbers off the top of your head
When presenting your business plan to an investor, they will expect you to be able to quickly rattle off answers to any questions about key figures - so make sure you know and understand your financial projections very well.return to list
Mistake 63 - Not being ready to take the next step
If a business angel believes in your project and is ready to kickstart the due diligence phase, you’ll look pretty unorganised if you come back and say it’ll take 3 weeks to prepare the documents.
Research the process and have all the necessary documents prepared before you go to pitch. You need to be ready to "cash in" on the day if the opportunity presents itself.return to list
Mistake 64 - Underestimating the time it takes to raise financing
Raising financing takes time: you have to meet the investors, have them do their due diligence, then negotiate the term sheet and finalise the deal.
This time requirement should be reflected in your business plan: don't send a plan that indicates that the business will be ready to launch in two weeks if you’re dependent on fundraising to get you started. This will just make you look like you’re naive and uninformed about the process.return to list
Mistake 65 - Emailing your business plan to someone who has never heard of you
Investors’ inboxes are overflowing with business plans sent blindly via the contact form on their website. At the top of this pile are those that have been sent to them by entrepreneurs they’ve either met at an event or who have been recommended by an acquaintance.
So it stands to reason that your project is much more likely to attract an investor’s attention if they know you, or you’ve been recommended to them by someone they know.
While we tackle how to approach an equity investor in a separate guide, in two words the technique consists of:
- Researching the companies the investor has already invested in to check that your industry interests him,
- Deciphering whether the investor has any capital left to invest (business angels tend to make portfolios of 10 to 20 investments),
- Making your approach (elevator pitch in mind and executive summary in hand) to the investor or someone they know at an event or online,
- Pitching the idea,
- Sending the business plan,
- Pitching the business plan,
- Create momentum around the fundraising (attract investors or at least one major investor who will make the project look more desirable),
- Performing due diligence,
- Maintaining the momentum,
- Finalising the fundraising
Here are some tools to help you:
- Crunchbase: search for companies in your sector that have raised funds (from there contact them to find out about their investors)
- AngelList: helpful for searching for investors and networking
- Linkedin, Meetup & EventBrite: helpful for networking
- Yesware: get notified when an investor opens your emails
- Google Analytics: follow the links in your emails to keep tabs on who visits your site and what they’re looking at
Mistake 66 - Offering a valuation without firm commitments from other investors
Your company is worth what the market is willing to pay. No more, no less.
If you have firm offers from investors at a given price, then you have a market price and you can quote it. If you don't, it's generally better not to, as you risk annoying the investor whose reading your plan by being off the mark.
If you want to talk about valuation, I recommend taking this approach. Rather than putting a number on it outright, explain that you need (x) amount of capital and that you’d like not to have to sell more than (y)% of the capital in order to remain in control of the company and be able to allocate part of the capital to future key investors.return to list
Mistake 67 - Asking for a confidentiality agreement before sending your business plan
Investors only sign non-disclosure agreements (NDA) in very rare cases. There are a few reasons for this:
- Venture capital funds are always looking at 3 or 4 deals with relatively similar concepts. If they start signing confidentiality agreements, they risk spending more time in court justifying themselves than investing
- It would take longer, on average, to agree on the content of the confidentiality clause than to process the case
- Given the number of cases they handle, storing and keeping track of all signed confidentiality clauses would be hell for investors
It’s not exactly headline news that investors don’t sign NDAs. So if you ask for one you risk exposing yourself as misinformed about the investment process.return to list
Mistake 68 - Not having an exit strategy
Getting equity "stuck" in an investment is one of the biggest fears for any equity investor.
Venture capital funds also have investors who normally demand their money back after a certain period. So for venture capital funds, taking the risk of being locked in an investment means it may be more likely they’ll fall out with there investors which will have an adverse impact on business.
Your business plan should therefore reassure investors by indicating at least one (or a few) credible exit routes.return to list
Mistake 69 - Planning to distribute 100% of net income
An aggressive dividend policy can weaken the company because it is left with a reduced investment capacity and no cash reserves to absorb economic shocks.
You should, therefore, reassure the bank about your financial policy by showing a plan in which resources are used prudently: some of the profits kept in reserve in case the business comes into hard times, a little paid as dividends, and the rest re-invested to grow the business.return to list
Also on The Business Plan Shop
- How to write a 5-year business plan faster with the right tool
- How to write the business plan for a grant application?
- Where to write the conclusion of your business plan?
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