Starting: Avoid These 8 Mistakes in Your Business Plan

4. Unrealistic Costs. Mitch observes that prospective small business owners are "not realistic about costs associated with the cash flow plan." Marge finds "cost estimates, especially build-outs, are usually incomplete, not researched, not based on at least three estimates, don't allow for contingencies, and often include too much startup inventory."

5. Vague Pricing. Esh is concerned that clients "do not have a good handle on estimating pricing of their product/service. This affects the break-even sales projections (if they do these at all) and other financial projections."

6. Unrealistic Projections. Mitch suggests that entrepreneurs are generally "too optimistic about sales growth and operating expenses." Marge notes clients' plans often have "no basis for projections, such as research, past sales and/or letters of intent." Esh states that clients "do not understand how to forecast (estimate/guesstimate) their sales. Therefore all financial projections become unrealistic." Carlos Bastidas agrees; he often sees sales projections that are "not defined on solid basis, poorly researched. The result either is very optimistic or very pessimistic profit forecasts."

7. Poor Understanding of Cash Flow and Its Implications. Larry finds that too often clients "lack understanding of how cash flow estimates determine the amount of money needed in the business before you begin. Most businesses need working capital before they turn the cash corner." Says Al, "The key is cash flow projections. It tells the lender how they get paid back." And "one important deficiency is a clear understanding of the financial information such as cash flows, profit and loss tables and break-even points," notes Carlos.

8. No Exit Strategy. Esh worries that too many "business plans have no exit strategy. This applies especially when large amount of money has to be borrowed. The financing people want to know what happens to the business if something happens to the owner."

Bob Paul, who teaches business plan workshops, recommends: "Don't think of your business plan as primarily an external document for investors. Instead create it for yourself and your team. This focus also helps eliminate a lot of fluff and has a better chance of focusing on critical issues and action plans. After you write an internal business plan, you can always use portions or dress it up for banks and investors." Carlos encourages entrepreneurs to write their own plans. When it's drafted by a consultant or friend, he says, "it does not reflect what the owner of the business really wants, or the owner is completely detached from the contents of the document." In sum, Al advises prospective entrepreneurs to remember the 5 C's for a good plan (and successful business): Cash Flow, Credit, Capital, Collateral, and Conditions. Are you struggling with any of these 8 mistakes? Find your local SCORE office and a free counselor to help you through it. If you're in the Chicago area, you are invited to sign up to talk to one of us. Other links on mistakes to avoid:

9 Top Business Plan Mistakes (from discussions with banks, venture capital and private equity firms, and individual investors.)

Don't Make These Critical Mistakes in Your Business Plans from Profit Dynamics survey of 250 venture capital firms.

10 Top Business Plan Mistakes, by Andrew Clarke, on Entrepreneur.com

Ten Top Business Plan Problems Victoria Posner of BizPlan Rx. (she has a background in commercial lending.)

SCORE's advice on Thinking Through Your Business Plan

Related post of mine: What's Missing From Everyone's Marketing Plan Drafts?

Peg Corwin, SCORE Chicago More posts by Peg

Peg Corwin

Comments

I feel that unfocused

I feel that unfocused marketing, unrealistic cost and poor understanding of cashflow and implications are the most common mistakes. you done a good job, Thank you for sharing information.

Thank you for your hard work.

Thank you for your hard work. Keep it up!

Excellent article, I’ll just

Excellent article, I’ll just subscribe to the feed.

Excellent post! Thank you for

Excellent post! Thank you for sharing.

very helpful information.

very helpful information. almost every part of a biz plan needs to be done by a professional im sure. try making a biz plan without a clue what your doing. no ____ fun. 3 weeks now, but i still dont want to go back to the meatball factory.

Peg, so rich in content and

Peg, so rich in content and directly from the real world. I anxiously await your every post.

Thank you for the article

Thank you for the article Peg. I plan to put a link to it in my newsletter.

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