How to Identify a business plan that should Be avoided
How to Identify a business plan that should Be avoided
The process of transforming an idea into a successful product or service begins, as with every process, in the very first steps – in the business plan.
What makes one business plan better than another? Is there only one correct way to write a business plan? Which parts are more important and which are less? Which parts should be emphasized? On which parts of the plan should you invest more efforts, money and time? How should you analyze information, collect external data, and use databases correctly? Who can be counted on, and who should not… and how can you avoid making critical mistakes that will lead an investor to NOGO your plan after reading only the executive summary?
Experienced investors are able to quickly recognize a business plan that does not reflect the business reality.
So what are those common mistakes that can be identified in the first reading?
An Excessively Favorable Assessment of the Product and/or Service (in other words, endless love…)
An excessively high assessment of the product and/or service will raise immediate suspicions in the early executive summary stage. We all know that when we are in love – any mention of faults in the object of our love will fall on deaf ears. The signs of “endless love” include a conceptual fixation when describing the initiative, a lack of objective scrutiny and judgment and ignoring risks. It is dangerous to fall in love with an idea! It is difficult, but definitely possible, to maintain a shrewd point of view throughout the entire process.
Investors put their money and hopes on people and usually this is not only a result of the product… surprising, but this is reality. A dreamer’s plan presenting a product whose essence will “save humanity”, will probably raise suspicions. It’s important to remember, your product and/or service will probably not change the face of the planet…
Simplistic and Unfounded Assessments
A simplistic statement: we are going to sell 10 million NIS during the second year of our operation… without any explanation on how this figure was estimated, will raise questions. It’s obvious that there is no method that can lead to a 100% accuracy in the assessment of future business activities, especially when discussing a start-up, but even so, a good business plan will be founded on a series of detailed basic assumptions, backed by market research and real data on competitors and the field in which you operate. A plan with no clear business model “flow” will increase the investor’s diffidence in the results presented in the plan.
Using Slogans and Clichés
“We intend to be number 1 in the category…”, “we will offer the best service…”, “we’ll conquer the market”… grandiose slogans and hollow sales pitches will raise suspicions if they are not backed by a clear business strategy. Two forces usually affect that chances of selling product and/or service to customers; the first, alleviating pain. The second, increasing pleasure. A business plan that does not clearly detail which pain the product and/or service can alleviate for its potential customers, and/or alternatively, which pleasure it can increase, will probably not be able to convince your potential investor to invest money in the initiative.
Disregarding Cash Flow. Disregarding Return on Investment Period.
Many people tend to think in terms of profit instead of cash flow. A business plan with no cash flow is lacking and should raise suspicions. A cash flow analysis stemming from business activities is of high importance to investors and precedes an analysis of revenues or net profits. A business plan without a cash flow offers only partial data of the described initiative. Examination of the return on investment using the NPV method is affected by the operational cash flow after tax and other flowchart adjustments, such as working capital, investments etc.
Other Warning Signs
Lack of clear milestones for business development, ignoring competitors, lack of focus on target audience, gaps in the plan’s implementation schedule, ignoring seasonal coefficients, ignoring first months of activities stabilization coefficients, using an excessively technical terminology, over optimism in the basic assumptions, vague/unclear phrasing, errors in understanding basic terms related to the anticipated financial statements, an entrepreneur’s vague resume, ignoring manpower qualifications and credit structure.
Also…
Using poor language or alternatively, using overblown language, a plan that is either too long or too short, repetitive content throughout the plan, a redundancy of appendixes and an unprofessional appearance.
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