Credit reporting and receivables management company Dun & Bradstreet (D&B) reports that in its extensive experience it has found that 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,” D&B says. “But investors are also alert for common problems that serve as red flags.”
Here are five common mistakes that D&B says too many business owners make when developing a business plan.
- Unrealistic financial projections
D&B says 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.” D&B says you should be able to explain and defend all of the important assumptions concerning your financial projections.
- Not defining a target audience
Rarely will one business appeal to everyone, and D&B says any plan must define the market and present a clear picture of potential customers. “You should ask yourself why will they purchase your product or service over another.”
- Being bombastic
Too much hype and the overuse of superlatives can be the downfall of an otherwise attractive business plan. “Wow them with the business idea, not hype or buzzwords,” D&B says, adding that 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.”
- Poor research
In an effort to get a business plan together quickly, D&B says some business owners skip on double-checking and substantiating their claims. It says that it is imperative to make sure your research is accurate, up-to-date, and verifiable.
- Don’t overlook the competition
Some business plans assume, or even claim, that there are 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.”
D&B advises not to ignore the competition or paint an overly rosy picture of the potential marketplace. “This will only show 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, D&B says it is often the case that many business plans fail to hit the mark because of weak writing skills, 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.”
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