There are countless misconceptions about how to write a good business plan. In fact, many arguments focus on whether a business plan is even a fundamental necessity. In circumstances when it is certainly needed, such as for pursuing funding opportunities, more mixed messages create confusion. For instance, applying for an SBA loan means a “good” business plan meets very specific criteria. Meanwhile, pitching to investors or potential partners requires a completely different focus and deliverable.
Unfortunately, where the rules for a good business plan are unclear, many entrepreneurs fall back on the SBA requirements and use those as a standard. Unless an SBA loan approval is the end goal, that set of criteria is typically not a perfect checklist to follow. Even in loan application scenarios, there are several myths that are believed by business plan first-timers. This article will review three common myths about how to write a good business plan, no matter whether the plan is being used for bank funding, investor pitching, or strategy purposes.
Myth #1: Mission statement is crucial
Many business owners put a huge emphasis on crafting a mission statement that is a mix of poetic, emotional and powerful language. There is a right way to write a mission statement for a business plan. However, the vast majority of entrepreneurs approach it incorrectly, wasting precious time. Even worse, it is one of those things that simply holds no importance when it comes to landing investor funding.
Frankly, it really does not hold much weight in the bank loan application process, either. Entrepreneurs are judged on many aspects of their business plan, but funding rejections don’t happen because a mission statement was amateur or missing altogether. In fact, for new businesses especially, creating an impactful mission statement is something that will likely take time to develop as the business settles into a rhythm and identity. Through this, the mission statement will likely shift and pivot more than once.
For this reason, dwelling on the perfection and nuance of a mission statement in the business plan phase can be a huge waste of time. Instead, the focus should be on making sure things like financial projections are 100 percent on point. Which, of course, brings this discussion to the next myth about business plans.
Myth #2: Financial projections must be perfect
This is a huge myth. Entrepreneurs spend countless hours toiling over spreadsheets and graphs and charts and tables, trying to figure out how much their business will profit in the next three years and how to show those profits in a generous light in their business plan. Naturally, these figures are created with care, oftentimes with support from a business plan consultant or a business plan writer to ensure quality.
The problem lies with the idea of perfect or accurate projections. There is no such thing. Business plan projections are a ballpark guess at where the business may yield costs and incomes. As a matter of course, the projections in a business plan are always wrong. No one can predict the future with 100 percent accuracy, and so the idea that projections can be right or wrong is a misnomer. They can be well crafted and well developed and well researched, but they cannot be “right” or “perfect.”
That being said, there should be care given to making sure they are crafted in a way that a logical person would be able to see how the projections are reasonably created. They should have a concrete basis and be developed based on historical trends found through market research and other data points. This will yield the most reasonable forecast possible. Ideal projections are well researched and are absent of any arbitrary numbers. Whether submitting to the SBA or to another audience, this approach is always the best practice. This weight on good research happens to be the focus of the next myth correction.
Myth #3: Market research should show the whole picture
A common mistake for people creating a business plan for the first time pertains to their idea of conducting good research. The problem is that good market research truly does show the whole picture—but that whole picture is not appropriate to fit entirely into a business plan. If that were so, a business plan would really be an encyclopedia about the industry. No banker, investor, or business partner wants to sit down to pour through 100+ pages of research. Yet, many novices, albeit well-intentioned, business owners make this mistake.
The right way to conduct market research is by considering the entire big picture, and then condensing the most important concepts and influencing factors down to a few pages. Summarized information is important for a great business plan, as it forces the reader (and the creator) to truly focus on what is critically important and impactful for the business. Less is more, and powerful information delivered concisely will have more impact than rambling pages of statistics, information, and over-explained industry trends.
A good way to make sure content is appropriate is to ask two questions. The first question is whether the content would be understood easily by a 12-year-old person. If so, then the complexity of jargon is likely acceptable. The second question is whether the content represents more than a third of the final business plan. If a business plan is 60 pages in length and the research comprises more than 20 pages, then it likely should be condensed and simplified further for balance in the final product.
Remember, there are a lot of circumstances where a business plan is crucial. A well-written and presentable business plan can lead to funding, optimized business strategy, and increased odds for business success. These things are not greatly impacted by a mission statement, no matter how punchy or interesting it sounds. Rather, these things are impacted by projections that are thoroughly conceived. They will not necessarily be “right”, but the numbers should be logical and based on research. Finally, great market research that is holistically conducted and then summarized smartly in the business plan can create a world of difference for the business owner and the business plan recipient. Any person creating a business plan should remember that while there is no one perfect way to do it, knowing the most effective approaches will increase your odds for a positive outcome.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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