Writing a business plan is an important part of the business startup process. There has been debate in recent years concerning whether or not creating a formal business plan is really helpful. In our opinion, it is never a bad idea to go through the process of presenting your business on paper. If nothing else, it will really help you focus and dial-in the strategy and trajectory of your business.
To get the best information possible, we interviewed a variety of small business owners/business plan experts. Here are the 5 common business plan pitfalls they identified and what they had to say about avoiding them.
1. The Plan Fails to Address Risk - Tom Glatt (Glatt Consulting)
Tom Glatt is the Founder and Owner of Glatt Consulting, a consulting company that advises Credit Unions on growth, achievement, and financial health strategies. Tom explained that a big part of what they do is writing/tweaking business plans, something which he has also done extensively with his own business.
He identified two major pitfalls. Here is what he had to say say about failing to address risk in your business plan.
"Too many business plans assume perfect scenarios unfolding with little friction. Taking some time to identify risks that could have a big impact on business is time well spent. I'll add that even when a risk section is included, those risks are often very generic and are quickly explained away. Simplified Example: "no one will want our product - but our research suggests this is unlikely." Carrying this example forward - exploring risks requires identifying and understanding factors that could temper demand. In the plan itself, those factors should be outlined along with the company's likely response when/if such risks arise. Rather than explain away lack of demand as an unrealistic risk, as in the example, the business should identify what could cause lack of demand - and then outline how the business will respond to the cause itself. "
2. Problems with Pricing Fundamentals - Tom Glatt
Tom also identified Pricing Fundamentals as a major business pitfall. He explained,
"For very small businesses, business plan assumptions about pricing often lack critical overhead detail which leads to overstated income/understated expenses. Pricing assumptions and/or models should factor in all aspects of overhead plus the margin the business owner needs to reinvest in the company's growth. Often inconvenient costs are removed from pricing assumptions in business plans because they make things look less rosy and/or because they illustrate business challenges that the owner would rather ignore."
The "Busy Bee Syndrome" - Dee Power (Former Business Management Consultant turned Author)
Dee has co-authored a variety of books based off of her experience as a business consultant, including "The Pocket Small Business Owner's Guide to Business Plans." Here's the most common pitfall Dee identified:
"A common mistake is what I call the "Busy Bee Syndrome." The business owner flits from one section of the business plan to another without completing any of the sections. By the time they return to a previous section, they may not remember what they were thinking.The bee may buzz from flower to flower but always has the end result, returning to the hive to make honey, as the goal. When writing your business plan, finish one section before moving on to another. This gives you a feeling of accomplishment and motivates you to keep going."
4. The Plan is Too Long - Rick Faulk and Marco Giannini
Rick (Chairman and CEO of Intronis) and Marco (Founder and CEO of Protein for Pets), both small business owners I interviewed, said that the most common problem they see, is that business plans end up too long. The whole point of writing a business plan is to focus in on the most important and pertinent business information. If your plan gets over 20-30 pages, you are probably not focused enough. Instead, really make an effort to dial-in and deal with the most important information, such as your product, your competition, the market problem and your solution, etc. If a lending agency or possible investor wants more information, you can always have separate documents ready that are more detailed in each area. But, for the plan itself, keep your information concise, organized, and to-the-point.
5. Not Having a Professional Presentation - David Waring (Fit Small Business)
David Waring is my business partner at Fit Small Business.
David Waring is the Editor-in-Chief for FitSmallBusiness.com and has had significant experience building businesses from the ground up. He explained that If you ever hope to impress investors or apply for a business loan, a professional business plan presentation is extremely important. In most cases, putting together a professional presentation on a program like PowerPoint, is not too difficult. However, in many cases, using business plan software can save you a lot of time. Fit Small Business has put together a business plan software guide, that should point you in the right direction and have you building a professional business plan in no-time.