New or inexperienced entrepreneurs often send business plans to potential investors before their plan is fully completed or vetted. Sharing a plan with obvious errors is one thing, but investors are also alert for common problems that serve as red flags.
Here are five common mistakes that business owners make when developing a business plan:
Unrealistic financial projections
Investors expect to see a business plan that paints a realistic financial picture of anticipated company growth. If your plan is overly aggressive and not consistent with growth in the industry, it may not get taken seriously. You need to be prepared to explain and defend all of the important assumptions concerning your financial projections.
Not defining a target audience
Rarely will one business appeal to all. Your plan must define your market and present a clear picture of your potential customers. You should ask yourself why will they purchase your product or service over another.
Too much hype and the overuse of superlatives can be the downfall of an otherwise attractive business plan. You should wow them with the business idea, not hype or buzzwords. The use of motherhood or blanket statements can also be a turn-off; investors don't want to read a vague, general or overly philosophical business plan.
In an effort to get a business plan together quickly, some business owners skip on double-checking and substantiating their claims. Make sure your research is accurate, up-to-date, and verifiable.
Overlooking the competition
Some business plans claim the business has no competitors, while others indicate only what the competition has done wrong. Investors reading a business plan want to see who the competition is and how you plan to compete with them.
Don't ignore the competition or paint an overly rosy picture, this will only shows investors that you're not being realistic. If your idea is brand new and there's truly no competition today, you can be sure others will follow.
In addition to the above, many business plan fail to hit the mark because of weak writing skill, inconsistencies from section to section, or simply by having too little - or too much - content. It is important to take time to carefully review each section of your business plan and identify as many problems as you can.
When you think it sounds perfect, have trusted friends scrutinise it before sending it to investors.