Small Business Solutions

Business Plans FAQ

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   What are the most common mistakes made when writing a business plan?

   There are many errors made by inexperienced business plan writers or business owners who fail to see why their plan was not accepted. But on the other side of the table, the following mistakes are common:

   Ignoring the Competition: A business does not operate in a vacuum. There are direct and indirect competitors who will fight tooth and nail to retain their customer base and market share. All too often, the business team will state that their product and service is so great that there are no competitors. This inward attention on the business shows investors that the management is over-confident and may not foresee external factors that can impact the business.

   Incredible Financial Projections: A growing company is what investors want to see and the growth patterns should be realistic and attainable. Financial data that is inconsistent with industry norms and overly aggressive can quickly have your plan shelved. It is far better too error on the conservative side here and work with your accountant on attractive and realistic numbers.

   One Billion Consumers: Claiming your market size as huge and customers as everybody will quickly lose all the credibility of your plan and business. Maybe in the future you can attack different market segments but for now focus on one or two niches you can effectively serve. By showing you deeply understand the clients in a narrow market and can serve their needs, you'll win over the confidence of your banker or investors.

   Procrastination: Many business owners under estimate the time and effort required to build a successful business plan. Don't delay. If you need capital in six months, now is the time to put together a plan and raise the money.

   The Big Deal: A business may have signed a big contact with a major company and over-emphasis of this deal can be perceived as a weakness. If 80% of your revenues are based on a one-company contract, your company could tank if the deal goes sour. Highlight that your company is adept at forging strategic partnerships or winning big contracts and this skill will be utilized to diversify the client base.

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   Do the readers of my business plan need to sign a non-disclosure agreement?

   A non-disclosure agreement (NDA) can send up red flags to your intended audience. A seasoned banker or venture capitalist is bound by client confidentiality and may find a NDA insulting. Secondly, if the business needs to protect its ideas and concept at this stage of the game than there may not be any barriers to entry for others to enter the market. A simple confidentiality clause at the front of the plan should suffice. In some cases, such as setting up a strategic alliance a non-disclosure may be necessary. If in doubt, consult with a lawyer.

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   How many pages is the typical business plan?

   The length of a typical business plan can greatly vary from 10 pages to a 100-page document. It really depends on the intended use of the plan and it's audience. An internal business plan for your company may exclude areas such as management team experience and be heavier on the implementation side. A basic plan for the banks will usually run 20 plus pages including the financials. The executive summary should not exceed 3 pages. A 2-page summary hitting all the key points in the plan is brief enough.

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   Should I use business plan software?

   Business plan software can help you organize your plan and guide you through the process. The big cautionary note here is that many bankers and investors will know a "canned" business plan which often lack originality and much thought. Think of your potential audience and decide from there. There are many excellent software products available on the market. If you do use one, base your selection on the following:

   Ease-Of-Use: With limited time, a busy business owner will need software that is easy to set-up and use the available templates and wizards.
   Industry Templates: The business plan software should offer templates for your business type and allow you to edit these features for a customized look.

   System Requirements: The current software version available should be compatible with your computer system.

   Data Input: If you are using a financial program, can you directly input your data into the business plan program?

   Support: Determine the level of support available for problems or questions that may arise when using the business plan software.

   Collaboration: Does the business plan software have collaborative abilities if you are having multiple team members or outside consultant's work on the plan?

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   What can I put in my business plan if I have no management team?

   The management team is critical to a solid business plan. If you don't yet have the funds to attract the talent you need, you can still find your staff with a future promise to come aboard when funding is complete. In this section, put your team as "acting CEO or acting general manager". You can also assemble a board of directors to add further credibility to your business.

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   If business plans are so important why do so few people actually write one?

   It is in human nature to put things off and procrastinate. It is a challenge for many business owners to put their assumptions on paper and risk the fact they may be wrong. A study mentioned in "Business Plans For Dummies" by Paul Tiffany states that companies with just the strategic section of a business plan have 50% more profits and revenue than non-planning businesses. Another survey found business planning companies have 63% higher revenue growth and 100% more profit. If that is not enough consider the following reasons for business failure:

   Poor Management Systems
   No Overall Vision
   Lack of Market Planning
   Not Understanding the Competition
   No Strategic Plan
   No Established Performance Measures
   Inadequate Financial Planning
   So instead of spending more time in vacation planning than business planning, put your business on track to success with a proper plan.

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   How can a business plan be helpful if it is quickly outdated?

   In today's breakneck fast-paced business world, the only answer to outdated business planning is BPM or Business Plan Monitoring. BPM is primarily set-up for internal use. This process begins with identifying the performance metrics for the business. Performance metrics are key ratios and numbers vital to the company's success.

   Depending on the business, metrics can be many items such as inventory turns, sales conversion or product defects. By regularly monitoring the performance metrics, the business owners can identify negative or positive anomalies, correct problems, capitalize on opportunities and keep the business plan current.

   To illustrate this process at work, let us look at the sales conversion metric. The business plan called for a 10% close rate on all qualified leads generated by the company. This assumption was the basis of the revenue targets in the financials section of the plan. After 3 months of operation, the company is only at a 7% close rate. This will impact the financial forecasts for the year. The business owners seeing this trend can go back to their market and sales strategy to see what is going wrong. Maybe changes need to take place in the product features or a competitor may have responded by signing customers up to a long term contract. This simple metric has alerted management to current changes in the market and will allow them to make some plan revisions to make the year-end forecast.

   Overall, a well written and researched business plan will not only prepare your company for today's conditions but tomorrow's unforeseen events. All business plans should have a contingency section to accommodate for the future. BPM process allows a plan to become a "biological" business plan. This is a plan that will not just sit on the shelf for 12 months but will always updated when new market conditions or strategic changes take place. At the very least the update should occur monthly. So to keep your plan current use the Business Plan Monitoring System.

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   I own a local company as a sole-proprietor. Do I need a business plan?

   It depends on the fact if you need to raise any capital or require investors. If no capital is required a business plan may help your profitability and success. By understanding the local market, you can reduce any upcoming risks and profit from new opportunities. For instance, if you operate a small video store in a town of 10,000 residents the plan can help you better understand your market, competitors and the external environment. New technologies and advances can often wipe out entire industries. Just ask the record manufacturers.

   Your plan doesn't need to be an exhaustive 50 pages but a 5 to 10 mini-plan highlighting your business and your future direction. A mini business plan should include a mission statement defining your business and the reason for existing. It should have a market analysis: competitors, pricing strategies, local market conditions and promotions. Also, look at your break-even point and a basic budget on expenses and operating costs.