In the more than 30 years I’ve been involved with business planning, I’ve seen styles and fashion of plans change a lot, but the fundamentals remain fairly constant. To help you craft a plan that hits all the right notes, here’s a list of some of the more common business planning mistakes you should avoid:
1. Don’t put off writing a plan. Don’t wait until you have enough time, don’t wait until you have the right people, and definitely don’t wait until there’s an urgent reason you suddenly need a plan. Instead, just do it now. Recognize that you need a business plan and that your first step is to prepare your first plan. Get a draft up and running and then continue updating it to keep it current with your business. Of course, you’ll soon realize that your plan may never be done, but the important thing is, you’re planning.
You should always be planning your business.
2. Don’t confuse cash with profits. There’s a huge difference between the two. Waiting for customers to pay can cripple your financial situation without affecting your profits. Loading your inventory absorbs money without changing profits. Spending most of your money buying inventory doesn’t affect profits, but cash flow is much more important than profits because profits are an accounting concept and cash is money in the bank–you don’t pay your bills with profits.
3. Don’t dilute your priorities. A plan that stresses three or four main priorities is a plan with focus and power. People can understand three or four main points. A plan that lists 20 priorities doesn’t really have any.
4. Don’t overvalue the business idea. What gives an idea business value is not the idea itself but a business that’s already built on top of it. It takes employees having shown up every morning, phone calls being answered, products being built, ordered and shipped, services being rendered, and customers paying their bills to make an idea a business. Either write a business plan that shows you building a business around that great idea, or forget it. An idea alone does not a great business make.
5. Don’t confuse a plan with the act of planning. You need both to succeed. And your planning process doesn’t end when your plan is done. The value of a plan is in the implementation it causes, and implementation starts the day you settle on the main points of your plan. Understand that your business plan is never really done-you’re always revising it, or should be, because reality is always pressing forward. Without a plan setting markers, you’ll never know the difference between plan and reality.
Work your plan; don’t just write it.
6. Don’t fudge the details in the first 12 months. By details, I mean your financials, milestones, dates, responsibilities and deadlines. Cash flow is the most important, but you also need lots of details when it comes to assigning tasks to people, setting activity dates and specifying what’s supposed to happen and who’s supposed to make it happen. These details really matter. A business plan is wasted without it.
7. Don’t sweat the details for the later years. This is about planning, not accounting, and you’re only guessing the future in a system full of uncertainties. As important as monthly details are in the beginning, they become a waste of time later on. How can you project monthly cash for three years from now, when your sales forecast is so uncertain? Sure, you can plan in five, 10 or even 20-year horizons in the major conceptual text, but you can’t plan in monthly detail past the first year. Nobody expects it, and nobody believes it.
8. Don’t create absurdly optimistic “hockey stick projections” of sales taking off in the near future. Yes, it happens about once a generation, but nobody believes it in a business plan because they all say that. No investor is going to tell you they believe that even though your sales have been flat up to this point, once you have their money, your sales are going to go through the roof. If you’ve really created that once-in-a-generation business whose sales will take off, then you’d better build so much bottom-up detail into that forecast that even the most jaded investor will believe it.
9. Don’t write too much. Keep your business plan short and focused on your main priorities. It’s a business plan, not a doctoral thesis. Stick to the main points, and use bullet points to keep the main points highlighted and simple.
10. Don’t sweat the formatting details. No business plan has ever failed because the page headers weren’t color-coded. Don’t dress up your plan with multiple fonts, too many colors or complex page layouts. Don’t hide the important information.
Keep it simple, and don’t sweat the small stuff.
Tim Berry is the president of Palo Alto Software Inc., based in Palo Alto, Calif, which produces the industry’s leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses. He is also the author of The Plan-As-You-Go Business Plan, published by Entrepreneur Press.
This article first appeared on Entrepreneur.com, March 1st, 2005. ©Entrepreneur Media, Inc. All rights reserved