Don't Overestimate Profits

I've been reading a lot of business plans this month, mainly for business plan contests at Rice University, University of Oregon, and later this week Moot Corp at University of Texas in Austin. One problem that stands out is projections that are too profitable.

True, occasionally some new business is so good, with a business offering so new and different, that it can post 20 or 30 percent profit from sales. But that's rare. If you want somebody to read your business plan and believe what you're saying, mistrust projected profitability that's way higher than your industry average.

I've seen plans projecting 40, 50, even 60 percent profits on sales. That doesn't make me (as a judge) think highly of their plan; it makes me think they have vastly underestimated costs and expenses, or, worse still, overestimated sales.