As an entrepreneur, you know that a business plan is an essential part of starting any new venture. However, while many owners know the importance of having a business plan, they don’t necessarily understand how to use it. All too often, the plan is written once and never reviewed or adjusted later, which can be a huge oversight.
Typically, entrepreneurs make the same mistakes when writing a business plan because of this misunderstanding, but you don’t have to follow in their footsteps. This article will outline the top three oversights and how you can correct course. When done right, a business plan can be a highly valuable tool for starting a company, so it’s imperative to approach the writing process with that mindset.
Why most business plans fail
First and foremost, a business plan “failing” doesn’t mean the business itself is doomed to fail; only that the plan doesn’t do its job. Some of the most compelling reasons for this failure include:
- Fast-changing environments and markets – Business plans are often one of the first steps to starting a new company, and various elements can change significantly from writing the plan to opening the doors.
- Written once, never updated – A business plan shouldn’t be treated as a one-use document. It should be updated and reviewed regularly to accommodate the needs of the company.
- The plan overestimates certainty – Part of a good business plan is to project elements such as sales and market share. However, while it’s good to be optimistic, you must also adjust the plan if projections or estimates fall short of expectations.
- Overuse of standard templates – A business plan template is a good foundation from which to draft your document. However, it shouldn’t be treated as a “one-size-fits-all” framework. The plan is for your business, and you have unique needs and challenges compared to other companies, so make sure to customize any templates as necessary.
Overall, as an entrepreneur, you should view your business plan as a vital tool in starting your new business. Think of it as your business bible, from which you can launch a successful company. While you can find success without a strong business plan, it’s much easier to thrive when you do it right.
What founders often overlook when planning
Mistake #1: Treating a business plan as a requirement, not a tool
Too often, entrepreneurs view writing a business plan as a task on a to-do list. Once it’s done, you can check it off and move on to the next step. However, this approach is a mistake because it fundamentally views the plan itself as trivial. Similarly, many new business owners believe that the plan is a final document, not a first draft.
Overall, the mistake here is not understanding that the value of writing a business plan is in the critical thinking and development of your ideas, not necessarily the document itself. The more time and energy you spend crafting the different components of the plan, the easier it will be to tackle those elements when it’s time to launch the company.
Mistake #2: Being overly optimistic and skipping the hard parts
Most entrepreneurs are highly optimistic about their business ventures; after all, no one would be willing to start a new company if they assumed it was going to fail. However, cautious optimism is healthy, but blind positivity is not.
In many cases, new owners put best-case scenarios into their plans when discussing revenue projections and risk assessments. However, it’s far better to maintain realistic expectations. As the saying goes, hope for the best, but expect the worst.
This means you can’t make the mistake of skipping over the hard or potentially negative aspects of a business plan. It may take longer than you hope to build an audience and start turning a profit, so you need to have the plan reflect that possibility. Typically, lenders and investors appreciate a more realistic approach as it makes it easier to assign risk.
Additionally, being honest within your business plan gives you and your startup team a much stronger foundation. Rather than struggling to reach lofty goals, you can work incrementally to reach more modest objectives. In this case, you’re far more likely to break past expectations, putting your business on a much better path forward.
Mistake #3: Writing the plan once and never revisiting it
As we mentioned, a lot can happen between writing an initial business plan and opening the doors of your new company. If you only write the plan once, it may become laughably obsolete once you actually launch. Instead, you should be updating and adjusting your plan along the way. Not only can doing this ensure the plan is more accurate, but it can also help guide decisions by acting as a roadmap for success.
Again, the value of writing a business plan is not having a complete document, but the process of developing ideas and managing expectations for your company. In that regard, updates and changes are not failures or mistakes on your part, but a commitment to making the plan as useful and practical as possible.
How to avoid common business plan mistakes
The best way to avoid the mistakes we’ve listed (among others) is to recalibrate your mindset when writing a business plan. The goal isn’t to draft a document of a specific length that has all the right sections or headers. The goal is to understand every facet of your business inside and out.
Some points to keep in mind:
- Focus on clarity, not word count – A business plan is a collaborative document, and everyone who reads it should be on the same page regarding your business.
- Customize the plan to fit your needs – Different business types require different plans because of how they operate. One example is building a plan for a B2B versus a B2C business. Selling to individual customers is vastly different from selling to other companies, so your plan should reflect that.
- Review and update regularly – If you think of your business plan as a foundational guidebook for your company, you’ll naturally update it often to reflect your business’s current status. For example, you may have ideas of how or where to secure funding, but then you can update the plan once you have lenders or investors secured.
- Use the plan to guide decisions – The other benefit of treating a business plan as a roadmap is that it can help you stay focused. Making high-level decisions is much easier when you know where you’re heading, both in the immediate and long-term future.
Getting set up before writing a business plan
Overall, the more you prepare before writing your business plan, the easier it is to avoid these mistakes. Organization and planning can go a long way to both crafting a valuable document and launching a successful company. So, some factors to consider when getting ready include:
- Know your business structure – Not only should you know what kind of business you’re forming, but how it will run operationally, including the management and executive teams. This might be a sole proprietorship, an LLC, or something else that suits your business needs.
- Keep business details handy – Contact information, addresses, account numbers, and your employer ID number (among other details) should always be handy to fill in wherever necessary.
- Maintain separate finances – It’s always better to set up merchant accounts and business credit cards when possible to make it easier to secure funding and to streamline your accounting practices.
- Know your goals – As a roadmap, your business plan should outline where you are right now and where your company is heading. These goals should be quantifiable, realistic, and achievable.
Conclusion
When you approach a business plan as a rigid document, mistakes happen. Instead, it’s best to focus on learning and refining your business goals and structure, rather than trying to craft a “perfect” set of projections and market data. Now that you know these common mistakes, it’s much easier to avoid them and to make a plan that evolves with your business, rather than becomes obsolete over time. Ultimately, remember that it’s your business plan, so take ownership of it and use it as the valuable tool it is.