Start-ups are at their most vulnerable when they seek capital. Lenders and investors rightfully scrutinize every detail of the business plan, looking for any sign that the company may fail. With so many things working against start-ups, it’s critical to understand what not to do in a business plan if you want to maximize your chances of success.
Here at Corporate Capital Direct, our goal is to give you the knowledge and tools to achieve success. We’ve put together a list of seven common business plan mistakes that could threaten your funding.
Avoid Common Mistakes:
1) Don’t assume too much, too soon.
Financial projections are an integral part of any business plan. Investors look at them to see how the company will perform over five years and what sort of profits it will generate along the way.
It’s tempting to inflate the numbers in hopes of getting more funding. After all, who wouldn’t want projections that show massive profits and growth? However, this isn’t the way to go about it. Even if you convince investors right now, they’re going to see through inflated projections in another year or two. If you prove unable to meet the numbers you’ve set, your business is going to look incompetent. It doesn’t matter how well-intentioned or innovative you are; investors aren’t going to trust a company that fails to meet its own goals.
2) Misunderstanding your audiences.
It’s important to know exactly who you’re targeting when you create a business plan. You can’t make a plan for sales without centering the people you are selling to! Not every business will appeal to every type of customer, so it’s important to narrow things down.
For example, a company that specializes in selling baby products may want to target young mothers, fathers, and single parents. That way, they can market to people who are most likely to buy their products.
Just identifying your audience is not enough, though. You will also need to conduct research such as primary and secondary market research in order to understand their needs and wants.
When you have a complete understanding of your audience, you are much better off than you would be otherwise.
3) Being uninformed on SBA loans.
SBA loans are one of the most popular types of funding for small businesses. SBA loans are backed by the government, which makes them easier to get than other types of financing options.
SBA loans are not without their own set of challenges, though. For example, SBA loan limits in your area may prevent you from getting the amount you want or need. SBA loans can also come with SBA loan processing fees, which means they’re often more expensive than other options.
Before you take SBA loans, make sure you understand what kind of SBA loan limits and SBA loan processing fees your area offers and how much SBA financing you’ll be able to get. If you are not informed, SBA loan difficulties could end up being a major setback for your company.
4) Sloppy mistakes.
Mistakes are common in business plans. After all, you’re trying to convey a lot of information clearly and concisely. Unfortunately, these mistakes stand out and make many business plans appear sloppy.
It’s important to check for these mistakes before you show your plan to anyone. One way to do this is to run your business plan through a computer program like Grammarly that will catch mistakes such as grammar, typos, and formatting errors.
5) Failing to focus on your team.
Investors also want to know that you have the right people in place to run your business. The success of your company will depend partly on the people you hire. Investors want to see that you have a team in place that will work hard and help your business grow.
Part of demonstrating the strength of your team is telling the story behind it. A cohesive, experienced team is a major factor in any company’s success; investors want to know how you built it.
You should identify and address any gaps in knowledge or skill amongst your team members and promptly solve them. Explain just how you plan to overcome these and demonstrate that your team is well-rounded, balanced, and ready to take on the challenges that lie ahead.
6) Failure to address competitors
Even if you have a unique business idea, there is almost always someone who has done it before. Even the best businesses in the world face competition, and yours will be no exception.
By understanding your competition, you can do a better job of positioning yourself against them. Your competitors may have strengths that you should avoid or weaknesses that you can exploit.
Failing to research and address your competition in a business plan is a sure way to leave an investor scratching his or her head. It makes you seem unprepared and unaware of the challenges ahead.
7) Being unaware of your distribution channels.
Distribution channels are the methods you’ll use to move your product or service from your company to your customers. For example, if you’re selling clothing, your distribution channels could include online shopping sites and department stores.
Your business model should be clear about how you plan to distribute your product or service, and this should be reflected in the Distribution Channel section of your business plan.
If you fail to include this crucial point in your business plan, an investor may wonder how you plan to move your business forward. He or she will want to be confident that your product or service has a clear path to market.
As exciting as it is to launch your own business, the business plan is often the most daunting part of the process; however, a business plan is also one of the most important parts of launching your own business.
You may want to consider hiring a professional writer or business consultant to put your business plan together for you. That way, it will be done the right way and you’ll know that all of your bases are covered.
Reach out to Corporate Capital Direct today for more information on what to avoid when making a business plan as well as what to include in a successful business plan!