5 Business Plan Mistakes - How To Avoid Them
If you are preparing to raise capital from either an investor or a bank, you’re probably writing a business plan. Here are five of the most common mistakes that I have seen as a result of my experience as a corporate-finance consultant:
Submitting the Plan to the Wrong PeopleI have actually heard entrepreneurs say, “I don’t know why I can’t raise any money. I’ve sent my business plan to hundreds of people!” Don’t make this same mistake.
You should first determine that your prospective investor or lender has an interest in your industry and your business. Do this by making a call or sending an introductory letter or e-mail. If you can receive a referral from an accountant, attorney,
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Never, under any circumstances, should you send an unsolicited business plan. These are put at the bottom of the pile, and they are seldom read or given serious consideration. If you determine that your prospect has an interest, send over only the executive summary for review, unless otherwise requested.
Incomplete Executive SummaryThe first thing that all prospective investors and lenders will want to read is your executive summary. This section should be no more than two pages, but three is the absolute maximum. When you write your business plan, the executive summary should be prepared last. (After all, how can you summarize something that has not yet been written?)
The summary should be
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The Opportunity: Describe the need that is currently unfilled in the marketplace; if the need is being filled, discuss how it is not being adequately met.
The Solution: Describe your solution to the problem, and why it is better than what is currently available.
Management: Describe why you and your team are qualified to deliver the solution that you have proposed.
Market Size and Share Expectations: Describe how large the market is for your solution, and discuss how much of that market you intend to capture.
Financing Need and Exit Strategy: Describe how much money you need and
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Weak Management
Either agree to hire full-time executives or bring skilled directors onto the board. If you are searching for funding from angel investors, you might offer executive management positions to those investors who have significant experience in the industry. Venture capitalists, on the other hand, are not likely to invest until the management team is complete.
Unreasonable Financial ProjectionsAll lenders and investors are accustomed to seeing financial projections that go in only one direction — up!
While every business owner and entrepreneur has the best of intentions when preparing a forecast for the next five years, it is seldom
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It is also not likely that gross and operating profit margins will improve forever.
Your assumptions with respect to working capital turnover, earnings retention, debt/equity mix, and return on invested capital must all be reasonable. If you forecast that your business will return 100% or more on its invested capital during each of the next five years, you are going to have some explaining to do. That does not mean that it is not possible, just that it’s not probable. (See this article on developing [http://www.growthcurveservices.com/articles/persuasive-projections.html]solid financial projections.)
Greed!Nothing will ruin a deal faster than greed. If your business is little more than an idea at this
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Spend less time worrying about the valuation today, and instead focus on structuring the transaction so that you can re-acquire a majority ownership interest in the future.
Moreover, don’t be too quick to equate majority ownership with control. You might be able to sell non-voting stock that does not give away control of the business.
Take steps to ensure that you’ve thought about these five points before you submit your
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One of the sections that all investors will read first is the discussion on management. If you do not have direct, significant experience in the industry in which you’re trying to start your business, add someone to the management team who makes up for your weakness.
Paul Broni is an Internet marketing and small business consultant in Alpharetta, Georgia. Visit his company on the Web at http://www.growthcurveservices.com