Guest Column by Dean Swanson

In today’s SCORE column, I need to follow-up on a reader request that said “Dean, you suggested that those of us that are already in business, should “revisit” our business plan and you gave some great ideas and questions to ask ourselves in the process, but you didn’t address my problem of looking at a business plan that is really outdated. Please give us some suggestions of what pitfalls to avoid when writing or revising a business plan.”

OK, I am going to again ask a SCORE mentor who is really good at assisting folks with their business plans. One of many that came to my mind is Hal Shelton. He is a SCORE mentor who is passionate about helping small businesses start and grow.

Hal started his response to my question by saying “That is a great question because business plan mistakes can result in anything from small setbacks to fatal errors for your business. Especially for businesses seeking funding, it’s crucial that your information is correct and none of your ideas are misrepresented.”

Here are a few of the mistakes that he feels a business CEO should avoid in their plan:

1. The opening message does not succinctly describe your idea and why it will be successful. First impressions are important — a plan is often judged by its two-page executive summary. Bankers, investors, and key vendors are busy people, so if a quick read of this opening section does not provide a clear and persuasive overview, they will likely move on to the next proposal.

2. The business plan is all about you and not what you are doing for potential customers. Businesses are successful when they provide products and services that profitably satisfy a customer need. You start a business because you are good at what you do and are passionate about it; however, you always have to come back to what you are doing for the customer.

3. There is no focus on specific products and services. Getting customers and cash flow can be hard at the start. To appeal to a large audience, many businesses try to take a broad approach when describing their products and services. This is not a smart strategy. Your business plan needs to show what you can bring to the market that is unique and different from your competition.

4. There is no clear statement on how you will generate revenue. Understanding how you will generate revenue — sometimes called the business model — is crucial for your own planning. It’s also important to communicate this clearly in your plan when applying for bank loans and asking for approval from credit committees.

5. The sales forecast is not believable. The sales forecast needs to be supported by data and analysis, a marketing plan that will find prospects and convert them into customers, and an analysis of competitor reaction to a new market entrant. Unfortunately, a good product or service will not sell itself. The problem with unsupported, robust sales forecasts is that the reader discounts them and moves on, and you are not in the room to defend your plan.

6. If you are just starting or are seeking a loan, the funding amount you’re asking for is not supported by the financial statements. There is a natural conflict between asking for money and wanting to demonstrate that you have a highly profitable business. Yes, there is a negotiation, but the requested amount must be supported with at least a three-year monthly cash flow projection.

7. If you are just starting and/or are seeking a loan….The funding you’re asking for primarily goes to your first-year salary. Banks and investors prefer to provide funding for assets or activities that will make money like buying a building or equipment, designing and building a website, or funding a robust marketing program. They are more reluctant to fund employee salaries. Taking a modest pay until the business generates sufficient cash flow is often seen an indicator of your commitment to your business.

Dean Swanson is past chairman of the southeast Minnesota chapter of SCORE.