Common Mistakes to Avoid When Writing a Business Plan

The process of writing a business plan is an invaluable experience that forces the author to think through his or her business concept in a systematic way. Its purpose is three-dimensional. It is a blueprint for a company, a tool to attract potential investors, and a legal document with which funds are raised.

Simply because a business plan is an important document, the author tends to make some common mistakes when writing the plan – mistakes that are very easy to avoid. For instance the plan shouldn't be longer than 40 pages because a concise, simple presentation is key. Many business plans drone on despite this advice.

Here are some common items business plans tend to leave out, but shouldn't:

Include a detailed "people" part of the business plan -- answers to personal questions regarding the business, including the who, what, why, where and how of the founders. Where are they from and where were they educated? What is their relationship and reputation within the business community? How committed are they to this venture? What are their skills, knowledge, abilities? The people part of a business plan should receive special care because that's where most intelligent investors focus their attention, and without good people none of the other parts really matters.

Address the risks. Entrepreneurs are often mistaken as risk takers, but any sane person wants to avoid risk. Even though it seems odd to address the potential risks associated with your business proposal, investors will recognize and appreciate the forethought.

Include numbers that appear mainly in the form of a business model that shows the entrepreneurial team has thought through the key drivers of the venture's success or failure. Business plan writers often mistakenly use "padding" -- wildly optimistic projections that typically discount the business plan's effect.

Explain in detail how the business venture enters an industry that is large and/or growing, and that is structurally attractive. Neglecting to address the business venture's placement in the marketplace is a common error. If the industry is not large or structurally attractive, the business plan should specify how the venture will still manage to make enough of a profit that investors or potential employees or suppliers will want to participate.

Mention -- and describe -- the competition. A good business plan doesn't whitewash the vulnerabilities. Rather, it proves that the entrepreneurial team knows the good, the bad and the ugly that the venture faces ahead. Address who the venture's competitors are, what resources they control, who else might be able to observe and exploit the same opportunity, etcetera.

Approach the business plan objectively. Among the many sins committed by business plan writers is arrogance. In today's economy, few ideas are truly proprietary.

For more information, sign up for the 3-credit course, How to Write an Effective Business Plan, from which this article is excerpted. This course is available individually for $59.97, or included with a SmartPros Advantage subscription.