Creating a business plan is an essential step in getting a new company off the ground. Writing this document helps founders not only evaluate their goals, but also communicate them to other people, especially investors. A good business plan can be the difference between funding your dreams on business credit cards and personal savings or getting support from a financial institute or business partner. Unfortunately, many business plans fail in this aim. Understanding common pitfalls and how to avoid them ensures you get the backing you need to develop your business idea.
Here are 5 things that can make your business plain fail — and how to avoid them.
1. Failing to Define What Your Specialty Is
Thousands of startups and small businesses pitch their business plans, and it’s important to stand out in the crowd to improve your chances of securing an investment. An effective way to do this is by clearly defining what makes your company unique, according to the U.S. Small Business Administration. This requires being clear about what your company offers in terms of products, services, unique skill sets, and experience. For example, if you’re starting a new restaurant, do you cater to specific types of clients, or do you have a renowned chef in the kitchen? When you can identify a niche in which you excel, you improve your chances of success.
2. Omitting Vital Information
The process of writing a business plan is as important as the plan itself, according to SCORE, a nonprofit association that works in partnership with the SBA to provide free services and advice for entrepreneurs. Writing the plan encourages you to think about your business in a systematic way. The SBA recommends covering the following areas:
- An executive summary to give an overview of your plan
- A company description, including what makes your business unique
- Market analysis to show you’ve researched the industry and your competitors
- Details of your business and management structure
- Details on what products and services you provide
- Marketing and sales strategies
- A funding request, with financial projections to support that request and an explanation of how these figures impact the business
3. Insufficient Understanding of Finances
Investors need to feel confident their money is in the hands of someone who understands the world of business and finance, and not just their particular line of work. If you don’t understand terms such as APR or lack a thorough grasp of sales figures, potential investors will balk no matter how good the business idea is. Solid business plans include significant research and budgeting and cover sales strategies, contingency plans for additional funding, and firm details on how much it costs to start the business and keep it running. Any funding requests need to be backed up with detailed financial projections to help investors understand the sources from which the return on investment will come, and a clear definition of how long that will take.
4. Failing to Maintain a Living Document
A business plan projects three to five years ahead and acts like a roadmap that defines a company’s growth and development. Creating the document is an important first step for a startup, but once the business is established, the plan becomes no less important. The plan can help generate extra funding, develop new business arrangements with other companies, take on high-level employees, or identify and rectify inefficiencies in your company structure.
That’s why it’s necessary to make changes to the plan by creating new goals or correcting mistakes. A truly valuable plan evolves along with the company, according to Harvard Business Review. Making changes when necessary keeps the plan alive and helps to drive the business forward.
5. Lack of Determination
If you want someone to invest in your idea, it’s important to invest in it, too. Giving up the first time a pitch falls on deaf ears doesn’t lead to new opportunities. If an investor refuses to get on board, it’s a good idea to ask them exactly why and then use that information to your advantage in a subsequent pitch. That kind of input can be invaluable to achieving your business goals.
This article was originally published at Credit.com.