Five Fatal Business Planning Mistakes

Summary: Business plan novices often don't recognize critical errors that can turn off potential investors. To make sure your business plan is taken seriously, be sure to avoid these five fatal mistakes.

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Unfortunately, inexperienced entrepreneurs often send business plans to potential investors before their plan is fully baked. Sharing a plan with obvious errors is one thing, but investors are also alert for common problems that serve as red flags. Make sure your plan avoids these issues:

1. 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. (For more information, see Making Financial Projections in Your Business Plan.)
2. Not having a defined target audience: No business will appeal to everyone. Your plan must define your market and present a clear picture of your potential customers -- why will they purchase your product or service over another?
3. Over-hype: 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.
4. Poor research: In an effort to get a business plan together quickly, some business owners do not take the time to double-check and substantiate their claims. Make sure your research is accurate, up-to-date, and verifiable.
5. No focus on your 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 competitors or paint an overly rosy picture -- it only shows investors that you haven't thoroughly researched your market. If your idea is brand-new and you truly do not have competition today, if your business becomes successful, you will tomorrow. Guaranteed.

These five biggies are not the only common business plan errors. Others include dry writing, inconsistencies from section to section, and plans that are too long.

It's important to take time to carefully review each section of your business plan and root out as many problems as you can. When you think it's perfect, have several other sets of eyes scrutinize it before you share it with investors.

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Business Takeaways:

1. Make sure your financial projections and assessments of your competition and customers are accurate and realistic. If you're not completely comfortable with your information, do more research to get it right.
2. Define your target audience: You can't expect your business to appeal to everyone.
3. Polish your final plan by making it succinct, well organized, and well written.

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