Yesterday, we started looking at the 10 mistakes business owners make as they write their plan. Today we continue with
Business Plan Mistake #2 – No Clear Audience
Business plans are written for many different reasons: to take to the bank for a loan, to prove to potential investors your plan is marketable, or simply to guide your business.
While the outline is the same, the amount of detail required in each section varies depending on the primary reader. Before you begin writing, decide for whom you are writing.
Are you applying for a loan? Then your primary reader is probably a commercial loan officer and members of the lender’s underwriting team. For this audience, you must pay careful attention to the numbers. Be sure you spend a significant amount of time building realistic financial projections. Good plans are written in stages, and it is common to make adjustments in your assumptions during the process. Before you submit the plan to the bank, double check to be sure your numbers are consistent throughout.
For a banker, one of the most important questions the plan should answer is: When will the business have positive cash flow? Be careful not to confuse profits with cash flow. Remember, profits don’t guarantee cash in the bank! Debts, startup loans, and disbursements to owners may erode cash reserves. Be sure you can prove the business will be able to repay a loan before you ask for one.
In contrast, a plan written to sell an idea for a new business to an investor or venture capitalist will have a slightly different emphasis. Almost a sales document, this type of plan is written to persuade investors you can take advantage of an opportunity by generating significant rewards for everyone involved. Investors evaluate the people and their track records, the idea, the market, and the technology. To capture their attention, you should focus on three elements:
- How big is the opportunity?
- Why is the investment worth the perceived risk?
- What is your ability to execute the idea effectively?
Most investors understand it is impossible to create realistic projections for truly innovative ideas. Therefore, they are more concerned with seeing proof that you have done your homework (spent time on research) and that you have the skills to manage the business.
And sometimes, you write a business plan just for you. Even if you do not need external funding, a written operating plan helps organize your business activities and creates a process to achieve your goals. The planning process defines objectives, establishes priorities, and outlines specific steps to achieve your goals. When you are writing for yourself, and perhaps for a management team, the most important sections are operations and business strategy. Do not spend a lot of time writing a detailed history. Instead, focus on how you will get to the future. This type of business plan is a living, breathing document that organizes your time and resources. Updated frequently, it is never quite finished.