Writing a business plan is the first step you will take as an entrepreneur. When referring to a business plan, Entreprenuer.com puts it quite eloquently; “It’s the tangible divide that separates entrepreneurs who just have an interesting idea and entrepreneurs who have a real, promising structure in place”. A business plan has a huge influence on the outcome of obtaining funding and thus the future of your entrepreneurial dreams.
There are plenty of elements that make an excellent business plan that makes investors throw money into your idea. There are also plenty of elements that can your business plan a flop. We at Funding Connection have reviewed hundreds of business plans during our time. Most are riddled with inaccuracies and lack basic information the funder requires in order to determine whether the business will be profitable or not.
Our team has chosen the top five common mistakes we find in a business plan:
1. Not Defining the Market Demand
This one is the top of our list as it is the most important factor in your business plan. Funders and investors want to see that there is a market for your product or service and that people will be buying what you selling as soon as you open your doors. Entrepreneurs often do not clearly define their target market and how they will penetrate that specific market. Get commitments from the potential customer, which can come in the form of an official Letter of Intent or an Offt
ake Agreement. This shows the funder that there are individuals or businesses demanding what you are offering, giving the funder peace of mind that you will be generating revenue from day one.
2. Unrealistic Financial Projections
We can get carried away with our optimism of our business ideas and make hockey stick shaped growth projections. Funders want to see a realistic picture of where your business is now where you aim it to be. It is crucial to support your projections with detailed explanations. Not only does this show that you understand how your business will grow, but you will be able to defend your numbers. With no explanation of your sales figures all the funders will see is a big red flag.
3. Lack of Research
Research into your industry, target market, competitors and the economy you will be operating in is crucial in two ways. Firstly, it helps make you an expert in the market that you will be operating in. Not only does this make you an industry expert but gives you the power to use that knowledge to shape your business model into something that will be profitable. It also shows the funders that you understand the industry.
4. Too Much Information
Be straight to the point in your business plan. No one wants to read a 100-page document filled with information that is mostly irrelevant. The purpose of your plan is not to demonstrate the depth of your knowledge, but to focus on the key elements of your business. This is not test cricket!
5. Leaving Out the Smaller Details
You may think we are being finicky here, but often the smallest bits of information can be the most informative. Often entrepreneurs leave crucial details out of their business plan, the main ones being:
· Location of operations
· Number of staff and monthly salaries
· Price list with unit costs (costs of producing each unit of your good/service)
· Loan amount breakdown
Please contact us if you need some help, click here!
Written by Stephen Thring (MSS Economics; Project Manager at Funding Connection)