But first, you may be wondering: What is a business plan?
The most common definition of a business plan is a written statement of business goals, a plan for achieving them, potential problems, an organizational structure, and a budget.
Many business owners make the mistake of thinking a business plan is a way of predicting the future. It isn’t magic; it’s just words and numbers on paper. The real purpose of a business plan is to help you create a mental framework that helps you explore and articulate how your business could grow and what could happen to it.
Here are some common mistakes new entrepreneurs make when drafting their business plans:
Mistake # 1: Relying too heavily on the plan to make decisions.
Let’s say you own a cookie shop. You might be able to reasonably and accurately predict the number of cookies you will sell in 2015, but your ability to predict your sales in 2019 is much lower. Instead of focusing on the quantitative specifics of your business, you should focus on a qualitative strategy for how your business could work.
It’s more productive to concentrate on the “what-ifs” and things that could actually happen—and how you would respond to them since things seldom go according to plan.
Mistake #2: Not budgeting for unknown expenses.
When your business has several moving pieces, it’s hard for everything to go seamlessly the first time. You’ll most likely have unexpected setbacks—from a sick employee to a vendor who made a clerical error on your order and sent you only 100 widgets instead of 100,000 widgets. Mistakes happen and it’s best to be flexible since most businesses have unexpected expenses their first few years.
Mistake #3: Overemphasis on the numbers.
Numbers are important—and you need to have good estimates on how long you expect your product will take to develop, how many you expect to sell, and how much you expect your rent will cost. But numbers are only part of the story.
Everyone loves Excel (even some lawyers) but there is often too much time spent using it when drafting a business plan. Instead of focusing on a financial model, focus on scenarios and what ifs to project how your business may or may not evolve.
Mistake #4: Overinvesting in appearance and format rather than functionality.
Looks may matter, but not nearly as much as we think. Don’t worry about the template: Focus on making sure you can show proof of concepts and that you have an understanding of your customers, your competitors, your legal and regulatory environment, and your costs.
Your business plan—more than anything else—needs to be a marketing plan: How will you reach your potential customers and what will you tell them to get them to buy your product or service?
Mistake #5: Failing to identify competition and responses to common questions.
No one likes to think of the worst-case scenario when they’re planning a business. In fact, by just announcing to the world that you’re starting a business, you’ll most likely receive so much positive feedback from family and friends that it may be hard to think of what could go wrong.
But before you get too excited, a good business plan will help you (1) survey the competitors in the marketspace and (2) prepare responses to common critiques and setbacks. You need to anticipate your audience’s questions and concerns so that you can address them.
Pretending challenges don’t exist won’t make them disappear; it’ll just make you less prepared to deal with them. It’s tough to identify all of the potential challenges, but you’re still better off studying and addressing the ones you can.
Mistake #6: Not enjoying the process.
Trust me: I am just as annoyed as you are when my family and friends criticize me for not “enjoying the journey”—whatever that means.
But business planning should be something you find helpful and not burdensome. It’s for you. If your plan is starting to feel like an obligation, then you may want to take a step back and see if you are (1) trying to write something that is way too long, (2) relying too heavily on data instead of philosophy and values, and (3) writing a plan that would be impossible to accomplish. If you can’t make your business make sense—and seem exciting—on paper, it’s probably best to take a step back for a moment.
In the end, it’s your business, so if a specific business plan doesn’t fit your learning or presentation style, then find or create a different one. Since the purpose of the plan is to create clear communication for yourself and others about your business, it’s up to you to figure how to accomplish it.
Rocket Lawyer can help you get started! Start your business plan today.