The Danger of Short-cuts in Writing Business Plans

They are available all over. Tools to help write a business plans can be found in books, software programs, and on-line sites. While many of them have some good features to them, for many entrepreneurs these aids become a short-cut.

I can usually spot a plan that has been written using one of the latest software tools or books. Several things stand out:

- They have a predetermined structure, so all plans written using these tools looks the same. I can spot plans using some of the more popular software a mile away.

- They tend to have fairly weak transitions and flow from section to section.

- They have sections that make no sense for some businesses, but people leave them in and try to write something. For example, a section on distribution often makes very little sense for a service business, but it is in the software and it ends up in their plan any way.

- Most importantly, the financial statements are often inconsistent (at best) with the written part of the plan. This is a fatal red flag for most financial backers, including bankers and investors.

Experienced business plan readers do not read the plan in the order it is presented. Typically, they read the plan in this order:

- Skim over the Executive Summary to see if it is even in the ball park for plans they consider.

- Look at the Team to see who is proposing to do the deal.

- The marketing plan is next. And as they read it they are looking back at your income statement to see if the marketing plan explains your revenue forecasts. This is the backbone of any business plan. Think of it this way. The marketing plan and revenue forecasts should tell the same story in two different languages: one in English and the other in the language of business.

- The next step is to look at the operating plan and compare it to the expense forecasts to see if it is consistent, realistic, and complete.

- If they are still interested, they will then look at the financing plan/proposal to see if they like the deal structure.

Remember that they may throw it in the trash at any point in this evaluation. The typical VC, for example, gets hundreds of plans each year. Only a small number get any significant consideration and only a small handful will get funded.

When you develop your plan, work on it in the order that they will evaluate it (other than the Executive Summary, which you write last). Start with market research of the industry, competitive environment and potential customers. Use that to develop a strong and compelling marketing plan. Then forecast your revenues based on the marketing plan. Take your time. This is probably the hardest step of writing a plan if you do it correctly. Revenues are simply price times quantity, but those are two of the most uncertain issues you will face. Do you homework to show that you are making reasonable assumptions.

Then work on the operating plan and expenses. This is usually easier for most of us. However, don’t worry about getting it right down to the last dollar. Too often we waste time on these sections. We feel safer here, so seem to want to work on that which we feel most comfortable with. Be accurate and complete, but never overly obsessive with every last detail.

When you finally put it all together you will put it in the traditional outline that most of the books and software suggest, as that is a fairly commonly expected standard format. But, when you write it free-style as I am suggesting, you have the best chance of ending up with a powerful story that holds together for even the most experienced business plan reader.

Save the money you would have spent on one of those books or software packages and treat yourself to dinner when you finish writing the plan the correct way.

©Jeff Cornwall
Director of the Belmont University
Center for Entrepreneurship