This article is one of a series that offers insight and guidance into the process of buying selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
The Eight Most Common Business Plan Mistakes
Edited by Rusell L. Brown
Often you may hear about what a business plan consists of. While including the necessary items is very important, you also want to make sure you don't commit any of the following common business plan mistakes:
1. Putting it off
Don't wait to write a plan until you absolutely have to. Too many businesses make business plans only when they have no choice in the matter. Unless the bank or the investors want a plan, there is no plan. Even if you are buying an existing profitable business a good business plan is crucial to continued success.
Don't wait to write your plan until you think you'll have enough time. "There's not enough time for a plan," business people say. "I can't plan. I'm too busy getting things done." The busier you are, the more you need to plan. If you are always putting out fires, you should build firebreaks or a sprinkler system. You can lose the whole forest for paying too much attention to the individual burning trees.
2. Cash flow casualness
Cash flow is more important than sales, profits, or anything else in the business plan, but most people think in terms of profits instead of cash. When you and your friends imagine buying or starting a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which equal profits. Unfortunately, we don't spend the profits in a business. We spend cash. So understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table.
3. Idea inflation
Plans don't sell new business ideas to investors. People do. The plan, though necessary, is only a way to present information. Investors invest in people, not ideas.
Don't overestimate the importance of the idea, particularly the importance of the uniqueness of the idea. You don't need a great idea to buy or start a business; you need time, money, perseverance, common sense, and so forth. Very few successful businesses are based entirely on new ideas. A new idea is much harder to sell than an existing one, because people don't understand a new idea and they are often unsure if it will work.
4. Fear and dread
Doing a business plan isn't as hard as you think. You don't have to write a doctoral thesis or a novel. There are good books to help, many advisors among the Small Business Development Centers (SBDCs), business schools, and there is software available to help you (such as Business Plan Pro, and others).
5. Spongy and vague goals
Leave out the vague and the meaningless babble of business phrases (such as "being the best") because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results.
6. One size fits all
Tailor your business plan to its real business purpose. Business plans can be different things: they are often just sales documents to sell an idea for buying or starting a business. They can be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to buy a business, start a business, or just run a business better.
7. Diluted priorities
Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is something else, certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each.
8. Hockey-stick shaped growth projections (flat to straight-up)
Have cash flow, sales and profit projections that are conservative so you can defend them. When in doubt, be less optimistic.
If you're considering buying, selling, or determining the value of a business, please take a look at some of the excellent books, reports, and software we have at Business Book Press to help you achieve success. For example:
The Business Reference and Pricing Guide is the bible of the business brokerage world. If you're a shrewd business buyer or seller, you will want this book to learn what just what the business broker knows. It will pay you big dividends throughout every aspect of the purchase and sale process. Learn more about it...
BizPricer Business Valuation Software is an accurate and inexpensive resource for prospective business buyers and sellers (and business brokers) who want to know the fair market value of a business. No financial expertise or specialized knowledge is needed. Save hundreds to thousands of dollars over hiring an appraiser to provide you with a similar result. Learn more about it...
Preparing A Business for Sale provides business owners with an understanding of the process they need to know to sell their business for the most money. Contains hundreds of little known tips, ideas and strategies to maximize the selling price of a business. Learn more about it...
Strategies for Successfully Buying or Selling a Business is our bestselling book. It has been recommended by Kiplingers Personal Finance Magazine, the BottomLine Personal Newsletter, and has been awarded the Best Business Book of the Year Award from the North American Bookdealers Exchange (NABE). Learn more about it...
Anatomy of a Business Purchase Offer provides you with all of the practical hands-on knowledge you need to make a successful purchase offer to buy a business. The author uses an actual Purchase Offer form to show you exactly what needs to be written and why! He details all of his recommendations in a line-by-line format for each and every aspect of the purchase offer. Learn more about it...
The Business Buyer's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully buy a business.
The Business Seller's How-to Kit: We've assembled a specially-priced Kit with all of the key information you'll need to know to successfully sell a business.