Precautions in a Business Plan

• The business plan is a classic tool that outlines certain business goals and shows how a management team plans to attain those goals. In many cases, business plans are concerned with the startup of a new company that intends to meet a certain need in the marketplace and earn profits by doing so. For a management group to write a quality plan, it's necessary to take precautions against mistakes that could cause serious problems.

Don't Hire a Writer

• One member of the management team, preferably the chief executive, should write the business plan. Others on the team can contribute parts of the plan. By going through the rigor of writing the plan themselves, the team comes to own it. When it encounters a flaw in the ideas or an unexpected problem, it must try to work it out; an outsider might be tempted to write around it. The team should create the financial projections themselves. At the end, when the members are satisfied that the plan is complete, they can hire a writer or an editor to make the document presentable.

Address the Problem

• Many business plans fail because they focus on telling the reader how great their product or service is. They describe the features and benefits in detail. But they fail to discuss the problem in the marketplace that the product or service will solve or alleviate. By overlooking the problem, they are missing the point of the business plan.

Know Your Target Market

• Some business plans fail to interest investors because they do not convince the reader that they understand what the target market is. Just because the company's market segment is big and growing does not mean the company will succeed by capturing even a small percentage of the market. Instead, the plan should describe in detail exactly how the company will penetrate the market segment, how it will hold on and how it will thrive.

Everthing Is Not All Right

• A company that announces in its business plan that it has every contingency covered and is poised to enter its market and embark on a rosy future should go back and look at the market again. Venture capitalists and other investors who see such plans will question them seriously -- if they don't discard them immediately. Knowledgeable investors will appreciate honesty in a business plan. If there is a weakness in the financial plan, it should be pointed out and discussed, not glossed over. Sophisticated readers of business plans can tell where information is missing. Missing information usually means a problem area.

Faulty Financial Assumptions

• Most business plans include financial projections covering three to five years. Companies should be very careful in deciding on the underlying assumptions and not become enthralled by the paper profits that can be conjured by state-of-the-art spreadsheet work and financial modeling.