During a business crisis, change comes at you fast. Meaning that good business planning is crucial to the survival and success of your business. However, even when you’re not navigating through a crisis, it’s easy to make mistakes that can prove to be costly for your business.
What are the most common mistakes when writing a business plan?
Some common mistakes are classics. Others are reflections of the growing need for planning as steering and management tools. But they are all common pitfalls to avoid. Do your planning right and it’s a powerful tool for quick decisions, rapid adjustment, and optimizing management.
So, what are the most common mistakes when writing a business plan?
1. Not planning
Too many businesses make business plans only when they have no choice in the matter. Unless a bank or investors want a plan, there is no plan.
Don’t wait to write your plan until you think you’ll have enough time. “I can’t plan. I’m too busy getting things done,” business people say. The busier you are, the more you need to plan. If you are always putting out fires, you should build firebreaks or a sprinkler system. You can lose the whole forest for paying too much attention to the individual burning trees.
You can actually put together a Lean Plan in less than 30 minutes. Here’s a free downloadable Lean Plan Template to help.
2. Using a single static plan
Now more than ever, as we deal with the crisis of 2020 and 2021, stop thinking of the business plan as just a plan. That conceptual mistake blocks you from the enormous benefits of planning as a process, with regular review and revision.
Things change overnight. Assumptions disappear into the wind. Your business planning is where you keep track of all of the connections between tasks, spending, goals, changing assumptions, and changing markets.
A good business plan is never finished. When your plan is done, your company is done. Do a lean plan and keep it fresh.
3. Losing focus on cash
Most people think in terms of profits instead of cash. When you imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be.
We are trained to think of business as sales minus costs and expenses, which equals profits. Unfortunately, we don’t spend the profits in a business. We spend cash.
Understanding cash flow is critical. If you have only one table in your business plan, make it the cash flow table. Here’s a free cash flow template to help you get started.
4. Skipping idea validation
Don’t overestimate the importance of the idea. You don’t need a great idea to start a business — you need time, money, perseverance, and common sense.
Few successful businesses are based entirely on new ideas. A new idea is harder to execute than an existing one because people don’t understand a new idea and they are often unsure if it will work.
Plans don’t sell new business ideas to investors. Plans just summarize business prospects and achievements. Investors invest in people, and their businesses, not ideas. Investors buy into a business, with milestones met and traction and validation; not just ideas.
The plan, though necessary, is only a way to present information. So make sure you’re ready to wow your prospective investors with your knowledge and leadership skills. Don’t expect your business idea — or the business plan you explain it in — to do the work for you.
Here’s our idea validation checklist — it can help you think through whether your idea is viable before you spend a lot of time and money on it.
5. Making the planning process overwhelming
Doing a business plan isn’t as hard as you might think. You don’t have to write a doctoral thesis or a novel. As we said earlier, the simplest Lean Plan is just a few pages of bullet-point lists, tables, and essential projections.
There are good books, many advisors among the Small Business Development Centers (SBDCs), and through the SCORE business mentoring program, business schools, and there is software available to help you (such as LivePlan).
Don’t sweat the cosmetics. Focus on the content. What matters is what you plan, not how you write about it.
6. Spongy, vague goals
Leave out the vague and meaningless babble of business phrases (such as “being the best”) because they are simply hype.
Remember that the objective of a plan is its results, and for results, you need tracking and follow-up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results. This article on how milestones make your business plan real and actionable will help.
7. Assuming that one size fits all
Not every business plan needs to be the same. In fact not every plan should be the same. To find success, you need to tailor your plan to its real business purpose.
Business plans can be different things: they are sometimes just sales documents to explain a new business. They can also be flexible Lean Plans, detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better.
Develop the plan that best suits your business goals and don’t let the planning process get the best of you.
8. Diluted priorities
Remember, strategy equals focus. If you split your priorities you split your focus and will only have difficulties making any progress.
Starting with a priority list of three to four items is the focus. A priority list with 20 items is certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each.
9. “Hockey stick” shaped growth projections
Sales grow slowly at first, but then shoot up boldly with huge growth rates, as soon as “something” happens. The only issue is if that’s your sole projection, you’ll soon find yourself in trouble.
It’s best to have projections that are conservative so you can defend them. When in doubt, be less optimistic. In fact, it may make sense to have multiple forecasts operating — one that acts conservatively, one that’s more optimistic, and another that reflects your actual performance.
If you’re unsure of where to start, here’s how we suggest you create your sales forecast.
10. Not paying attention
We’ve seen it again in 2020 — planning works best as a process. In order to navigate volatile environments a lean plan, regular reviews, and revisions as needed are necessary. It’s not about having the document, the business plan, that isn’t the goal. It’s about a system of planning that works like driving with a GPS.
You have the long-term strategy and goals as the desired destination. You have the major milestones and metrics as the recommended route. And you have regular progress reviews as the equivalent of real-time traffic and weather information.
Steering is a matter of frequent course corrections. Planning does that for you. If you’re not paying attention, and not adjusting to external factors, your plan is worthless.
11. Sticking to the plan
Contrary to popular belief, there is no virtue in sticking to a plan, just for the sake of sticking to a plan. There are plenty of cases where your initial plan is ill-informed, missing steps, or just ineffective.
Having a plan doesn’t mean you cut your options or reduce flexibility. Having a plan means you have a dashboard tool to show the connections and dependencies. It’s about being able to make the right changes fast. It is more flexible, not less.