Starting a business is an exciting time. The ideas are fresh and flowing, and you’re eager to get your product to market as soon as possible to start reaping the rewards. However, things can come to a standstill when it comes to your 5-year business plan.
Research shows that around 20% of new businesses fail in the first year – evidently, it’s important to start the right way. Often, this will be securing funding, since you need cash to grow – but how do you go about applying for grants, loans, and investment?
First of all, you’ll need a 5-year business plan. Very few loan companies will accept a business that doesn’t have a good plan. After all, they want to see a return on their investment and they’re counting on you paying them back.
If the thought of writing a business plan fills you with dread, you’re not alone. It can be a cumbersome task that forces you to really dig deep into your hopes, dreams, and fears, but it’s absolutely essential if you want strategic growth and success.
To help you out, here are a few key mistakes to avoid to make sure your 5-year business plan hits the spot with every potential investor.
1. Failure to plan
This sounds overly simplified, but this is the 101 of how to make a business plan.
What we mean here is that many businesses don’t put together a business plan until the very last moment. Perhaps they’ve just found a grant to apply for, but applications close in a couple of days? At this point, they find themselves in a mad scramble trying to put something together to show.
And this is where they fall short. Your business plan outline should be a fluid document that begins with your business. Even if it changes over time, you should have something that documents your plans, ideas, and aspirations from the get-go. This eliminates the need to scramble last-minute to get something together for investors.
2. Lack of idea validation
You’ve got a great idea and you’re excited to get it out there in the world. But have you actually tested it out on your target market? Do you know it’s a product that’s wanted and needed? Without knowing this information, it’s difficult to determine whether your product will succeed or not.
It’s crucial to validate your idea and include that when writing a business plan. There are companies that pay for ideas, but investors and banks want to feel secure in your product and have proof that it’s needed.
Remember, very few successful businesses are based on a brand new idea (the phrase “don’t fix what isn’t broken” is a saying for a reason).
In fact, while coming up with a new idea can feel exciting and innovative, it’s far harder to execute because you have to explain to people why they might need it in their life.
Your 5-year business plan isn’t supposed to pitch a new business idea to investors, it’s supposed to prove to them that you have a plan for hitting milestones, and reaching a target revenue or user base.
3. Vague business goals
Banks are not looking for wishy-washy business ideas. They want concrete proof that you know what you’re doing and have a plan moving forward.
Hitting them with phrases like “be the best company in X industry” doesn’t mean anything. Why? Well, firstly, it’s subjective and, secondly, it’s a completely arbitrary goal.
Instead, your 5-year business plan should list concrete goals, including dates, results, budgets, and resources that you’re going to need.
The more logical and strategic you can be when creating a business plan, the better, as this gives investors and banks the chance to see that you know what you’re talking about. They will therefore feel far more comfortable funding your business.
4. Too many priorities
All business plans need a “next step”. These are the activities that you’re going to focus on next to move your business towards your stated milestones and goals.
Taking a scattergun approach and listing out 10 or 20 priorities might feel like you know what you’re talking about, but, it will seem messy and counterproductive to banks and investors. After all, how can you focus on 20 things at once?
Rather than trying to jot down as many activities as you can come up with, start with a very small priority list of just three or four items. This way banks and investors know exactly what you’re going to be working on and it gives you focus at the same time.
5. No interest in the competition
Your business isn’t an island. It exists in an ecosystem of hundreds (or even thousands) of other similar businesses in the same industry!
Acting like these other businesses don’t exist shows investors that you’re oblivious to the surrounding landscape. Even worse, if you say your business doesn’t have any competitors, banks will quickly start to realize you don’t have as good a grasp on the industry as you should have.
When discussing the competition in your 5-year business plan, be sure to talk about what makes them competitive, the steps you’ll take to mitigate the risks, and how to make your business stand out.
Identifying potential threats and tackling them head-on will prove to lenders that you’re prepared for all eventualities.
6. Unrealistic goals
Goals are great, but lofty goals that aren’t grounded in reality can be harmful to your business plan. Lots of entrepreneurs go all in and try to impress lenders with unrealistic goals that seem unattainable even to the untrained eye.
Remember, your business plan isn’t the place to write out your dreams for your business, it’s a place to be realistic and true to yourself. Instead of saying things like “we’re going to be the best in the business”, acknowledge your strengths and identify your position in the market and the things that will make you stand out.
7. Losing sight of weaknesses
Just like your business plan isn’t the place to list lofty goals, it’s also not the place to only focus on why your business is so great (which of course it is, but banks want to see more than that).
As well as highlighting what makes your business unique and why lenders should invest in your idea, you should also mention potential weaknesses and risks.
Lenders like to see that you know what you’re up against and have measures in place to tackle any potential risks or threats that crop up. This makes them feel more secure in lending you cash because they know that you’ve thought about potential weaknesses, and have considered all angles.
8. Over-hyping how much you need
There are tons of funding options out there for new businesses and it can be tempting to go all-in and try to get as much money as possible.
However, if you overpredict how much you want to loan, it can be tricky to pay it off if you don’t start generating the revenue you need (and promised to the banks).
Get it right the first time. Use a bank loan calculator when writing your business plan, so you can get an idea of the amount you’re likely to get.
9. Rigid plans
It can be easy to get caught up in getting your business plan “just right” and then making every effort to stick to each word.
But, as we said earlier, a business plan is a fluid document that changes over time with your business. Trying to stick too closely to the steps you list out in your plan can actually be detrimental to your business – we all know how unpredictable markets, and the business world, can be.
The best thing you can do is have a loose roadmap for your business and follow it as much as you need to. Don’t be afraid to veer off track if something changes and you can see a new route opening up.
10. Overly optimistic sales
We all want our businesses to do well. Often, we’re a bit too keen to sing their praises. While having a plan for huge growth can be great, it’s important that you’re not overly optimistic with your sales predictions.
Banks and lenders are very familiar with what business trajectories look like, so they will sniff out any inflated numbers a mile off. It’s also worth bearing in mind that the more you pad out your sales, the more you might have to pay back on your loan, so only list out what you think you can afford.
Make Your 5-Year Business Plan Work For You
Business plans are a necessary part of business, especially if you want to secure funding from a bank or investor. Most will require you to have the trajectory of your business mapped out and understand the potential risks involved.
Start by creating your 5-year business plan early, to avoid that sweat-inducing last-minute panic, and be prepared to be as realistic as possible.
Most importantly, remember that your business plan isn’t a static document. It’s a living, breathing entity that evolves with your business and takes into account the highs and lows of your growth pattern.
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