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Thursday, November 20th, 2008
articles.php?which=WhatAreSomeCommonBusinessPlanMistakes
What Are Some Common Business Plan Mistakes?

Alexander Pope once wrote that, "to err is human." Our translation: you're going to screw up sometime. The time to avoid mistakes though, is in your business plan. Think about it: your business plan is effectively a plea for cash. And presenting a document riddled with errors (even if they don't look like mistakes to you) won't do much to convince an investor, let alone a family member or anyone else you solicit that they should to write you a check. That's why we decided to help our reader who asked the following: what are some common mistakes people make in their business plan?

While there's as many ways to screw up a business plan as there are plans that don't get funded, here's some of the most common errors:

-Being unrealistic. While it's terrific that you have dreams of your company becoming a multi-billion dollar multi-national firm within two years of operation, your business plan is no place for pipe dreams. That means you must have realistic financial projections backed by solid research. We've said it before, but pulling sales figures and operating costs out of thin air isn't going to fly with an investor. The other area where people seem to overreach is in their perception of how quickly their business will grow and expand. Temper your expectations, and project conservative growth. Believe it or not, that will do more to impress an investor than off-the-charts sales projections. Another related mistake? Assuming that profits equal cash-on-hand. It doesn't. Make sure you have plenty of working capital to keep your business up and running.

-Writing a business plan that is jumbled, wordy, and disorganized. We get that when you write a business plan you're trying to condense a ridiculous amount of information into one document. But that's not an excuse for a plan that reads like Jabberwocky. Read and revise your business plan as many times as you can stand it, and pass it around to friends who have a keen eye for grammar and prose. The more times you edit something, the better and more refined the document will be.

-Adding egregious costs. Sure it's fun to imagine how much money you could squeeze out of an investor—$100K? $500k? $1 million dollars! But if you start adding extraneous costs into your business plan just because you can, an investor will notice. Cut the fat and expenses where you can—particularly in this market. And keep in mind that you're launching a start-up business. The expectation is that you'll find ways to work with very little. Just because an investor chooses to fund your business doesn't mean that they're cool with that car, driver, and $50K in "travel expenses" you slipped into your start-up capital requirements.

-Trying to do too much. As a start-up, keep your business focused on its primary mission. Whether that's to develop software, sell clothes, or launch a social networking site, direct all your efforts and resources to that. If the business is able to expand into other areas eventually, that's terrific. But in the beginning you don't want to stretch yourself too thin—and you want to make it clear to an investor that you know that.

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