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17 Key Business Plan Mistakes to Avoid in 2024

Posted december 6, 2023 by noah parsons.

If you’re like most people and you’re writing a business plan for the first time, you want to make sure you get it right. Even if you follow the instructions in one of the popular business plan templates out there, you can still make mistakes. 

After having spent countless hours reading thousands of business plans and having judged hundreds of business plan competitions, I’ve assembled a list of the biggest business plan mistakes that I’ve seen.

What is the biggest mistake when preparing a business plan?

The absolute biggest business plan mistake you can make is to not plan at all.

That doesn’t mean everyone must write a detailed business plan. While you should do some planning to figure out what direction you want to take your business—your plan could be as simple as a one-page business plan, or even a pitch presentation that highlights your current strategy.

Your strategy and ideas will certainly evolve as you go, but taking a little time to figure out how your business works will pay dividends over time.

17 common business plan mistakes to avoid 

Assuming you’ve at least decided that you should do some business planning, here are the top business plan mistakes to avoid:

1. Not taking the planning process seriously

Writing a business plan just to “tick the box” and have a pile of paper to hand to a loan officer at the bank is the wrong way to approach business planning.

If you don’t take the business planning process seriously, it’s going to show that you don’t really care about your business and haven’t really thought through how your business is going to be successful. 

Instead, take the time and use the planning process to strengthen your understanding of how your business will be successful. It will improve your chances with lenders and investors and help you run a better business in the long run.

2. Not having a defined purpose for your business plan

Why are you writing a business plan?

Is it to raise money? Are you just trying to get your team on the same page as you so they understand your strategy? Or are you planning a new period of growth?

Knowing why you are writing a business plan will help you stay focused on what matters to help you achieve your goals, while not wasting time on areas of the plan that don’t matter for what you’re doing.

For example, if you’re writing an internal business plan, you can probably skip the sections that describe your team. 

3. Not writing for the right audience

When you’re putting together your business plan, make sure to consider who your readers are. This is especially important for businesses that are in the technology and medical industries .

If your audience isn’t going to understand the specialized vocabulary that you use to describe your business and what you do, they aren’t going to be able to understand your business.

On the other hand, if your audience is going to be all industry insiders, make sure to write in the language that they understand.

4. Writing a business plan that’s too long

Don’t write a book when you’re putting together your plan. Your audience doesn’t have time to spend reading countless pages about your business. Instead, focus on getting straight to the point and make your business plan as short as possible.

Start with a one-page plan to keep things concise. You can always include additional details in an appendix or in follow-up documents if your reader needs more information.

5. Not doing enough research

You don’t need to spend endless time researching, but your business plan should demonstrate that you truly understand your industry, your target market, and your competitors. If you don’t have this core knowledge, it’s going to show that you’re not prepared to launch your business.

To keep things simple, start with this four-step process to make sure you cover your bases with an initial market analysis.

6. Not defining your target market

Don’t assume your products are for “everyone.”

Even a company like Facebook that now truly does target “everyone” started out with a focus on college students. Make sure you take some time to understand your target market and who your customers really are.

Investors will want to see that you understand who you are marketing to and that you’re building your product or service for a specific market.

7. Failing to establish a sound business model

Every business needs to eventually have a way to make money. Your business plan needs to clearly explain who your customers are, what they pay you, and have financial projections that show your path to profitability.

Without a real business model , where income covers your expenses, it will be difficult to show that you have a viable path to success.

8. Failing to showcase current traction and milestones

Great business plans are more than just a collection of ideas. They also demonstrate that you have early traction — a fancy way of saying that you have some initial success.

This could come in the form of pre-orders from a Kickstarter campaign or initial contracts that you’ve signed with your first customers. Traction can be as little as expressed interest from potential customers, but the more commitment you have, the better. The companion to traction is milestones. Milestones are simply your roadmap for the future — your next steps with details of what you’re going to do and when you’re going to do it. Make sure to include your best guess at your future timeline as part of your business plan.  

9. Having unrealistic financial projections

Everyone dreams of sales that start from zero and then just skyrocket off the charts. Unfortunately, this rarely happens. So, if you have financial projections that look too good to be true, it’s worth a second look.

Investors don’t want you to be overly conservative either. You just need to have a financial forecast that’s based in reality and that you can easily explain. 

Keep in mind that when first starting out, you may not have exact numbers to work with. That’s perfectly fine. You can work with general assumptions and compare against competitive benchmarks to set a baseline for your business.

The key here is to develop reasonable projections that you and any external parties can reference and see as viable.

10. Ignoring your competitors

Not knowing who your competitors are , or pretending that you have no competition, is a common mistake. It’s easy to say that you have “no competition,” but that’s just taking the easy way out. Every business has competition, even if it’s a completely different way of solving the same problem.

For example, Henry Ford’s early competition to the automobile wasn’t other cars — it was horses.

11. Missing organizational or team information

When you’re starting a business, it’s likely that you haven’t hired everyone that you’re going to need. That’s OK. The mistake people make in their business plan is not acknowledging that there are key positions yet to be filled.

A successful plan will highlight the key roles that you plan to hire for in the future and the types of people you’ll be looking for. This is especially vital when pitching to investors to showcase that you’re already thinking ahead.

12. Inconsistent information and mistakes

This almost goes without saying, but make sure to proofread your plan before you send it out. Beyond ensuring that you use proper grammar and spelling, make sure that any numbers that you mention in your plan are the same ones that you have in your financial projections.

You don’t want to write that you’re aiming for $2 million in sales, while your sales forecast shows $3 million. 

13. Including incomplete financial information

You may have a great idea, but a business plan isn’t complete without a full financial forecast. Too many business plans neglect this area, probably because it seems like it’s the most challenging. But, if you use a good forecasting tool like LivePlan , the process is easy.

Make sure to include forecasts for Profit and Loss, Cash Flow, and Balance Sheet. You may also want to include additional detail related to your sales forecast.

For example, if you run a subscription business , you should include information about your churn rate and customer retention.

14. Adding too much information

Don’t fall into the trap of adding everything you know about your business, your industry, and your target market into your business plan. Your business plan should just cover the highlights so that it’s short enough that people will read it.

A simple and concise plan will engage your reader and could prompt follow-up requests for additional information. 

Focus on writing an engaging executive summary and push non-critical, detailed information into your appendix — or leave it out altogether and leave the details for those that ask.

Remember, your business plan is there to serve a purpose. If you’re raising money, you want to get that next meeting with your investors. If you’re sharing your strategy with your team, you want your team to actually read what you wrote.

Keep your plan short and simple to help achieve these goals.

What should not be included in a business plan?

Here are a few things to leave out of your plan:

• Full resumes of each team member. Just hit the highlights.
• Detailed technical explanations or schematics of how your product works. Put these in the appendix or just leave them out completely.
• A long history of your industry. A few sentences should be enough.
• Detailed market research. Yes, you want market research but just include the summary of your findings, not all the data.

Make sure to include:

• Executive summary.
• Financial projections.
• Market research (just a summary)
• Competition overview
• Funding needs (if you’re raising money)

15. Having no one review your plan

As with any work that you do, it’s always helpful to have a few other people take a look at your work as you go. You don’t have to please everyone and you don’t have to implement every comment, but you should listen for themes in your feedback and make adjustments as you go. 

A fresh pair of eyes will always help spot pesky typos as well as highlight areas of your plan that may not make sense. You can even explore having a plan writing expert review your plan for a more in-depth analysis.

16. Never revisiting your business plan

Business plans are never 100% accurate and things never go exactly as planned. Just like when you set out on a road trip, you have a plan to reach your final destination and an idea of how you will get there.

But, things can change as you go and you may want to adjust your route. 

Planning for your business is often the same as that road trip and your plans will change as you grow your business. Keeping your plan updated will help you set new goals for you and your team and, most importantly, set financial goals and budgets that will help your business thrive.

Incorporate your plan into regular review meetings to be sure you’re consistently revisiting it and integrating the time spent reviewing into your current workflow.

17. Not using your business plan to manage your business

Revisiting and revising your business plan is how you use your plan to manage your business. If you aren’t updating your goals and following a budget, you’re flying blind. Your plan is your ultimate tool to help you manage your business to success. You can use it to set sales goals and figure out when and how you should expand. 

You’ll use your plan to ensure that you have healthy cash flow and enough money in the bank to handle your growth. Without managing your plan, you’re left to guess and live with a level of uncertainty about where your business is headed.

How a business planning and management tool helps you avoid mistakes

Writing a business plan can seem like a daunting task. Sure, you can do it yourself with free templates and advice like you find on this website . But, doing it on your own can just slow the process down, lead to mistakes, and keep you from actually working on building your business.

Instead, consider using a planning tool, like LivePlan, which features step-by-step guidance and financial forecasting tools that propel you through the process.

LivePlan will help you include only what you need in your plan and reduce the time you spend on formatting and presenting. You’ll also get help building solid financial models that you can trust, without having to worry about getting everything right in a spreadsheet.

Finally, it will transform your plan into a management tool that will help you easily compare your forecasts to your actual results. This makes it easy to track your progress and make adjustments as you go.

So, whether you’re writing a plan to explore a new business idea, looking to raise money from investors, seeking a loan, or just trying to run your business better—a solid business plan built with LivePlan will help get you there. 

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Noah Parsons

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10 Common Business Plan Mistakes

Are you thinking about getting your business plan underway? Many elements go into a good business plan. And it often takes time, patience, and many revisions before you get it right. Set yourself up for success by learning how to avoid these ten common business plan mistakes.

1. Unrealistic Financial Projections

Lenders and investors expect to see a realistic picture of where your business is now and where you hope it goes. One of the most common business plan mistakes is overestimating the value of your company. Ensure your plan is pragmatic and explain your projections. This way, lenders and investors are much more likely to accept your plan, knowing you’re thinking logically.

2. Not Defining a Target Audience

You must define your specific target market, present how you’ve made these assumptions, and outline how you’ll target them. No business will appeal to everyone, so think carefully about who your audience is. 

Need help defining your target market and learning about market research? We offer resources such as a Market Research Resources Guide , seminars on market research and one-on-one consultations with in-house experts. 

3. Too Much Hype

It’s essential to believe in your business idea. But, to truly showcase its potential, you should focus on providing backup for this belief. Instead of relying on superlatives like “hottest” and “greatest,” wow them with your well-researched business plan. Let your good ideas and preparation speak for themselves.

4. Poor Research

Don’t let your hard work go to waste. Remember to double-check and substantiate all your research. Using incorrect or out-of-date information would discredit your business idea and plan. If you need clarification, get a colleague, friend, or family member to help you review it.

5. No Focus on Your Competition

Even if your business is one-of-a-kind, there’s no such thing as no competition. It’s important to highlight your competition, but not so much that the investor worries the business won’t survive. Focus on your niche and what separates you from other companies. Highlight how you plan to compete in the marketplace and paint an accurate picture of what the industry is like now and where you see it going.

6. Hiding Your Weaknesses

Every business has weaknesses, but you could risk deterring the investor if you hide or highlight them too much. The best way to address them is to include a detailed strategy for solving them. Ensure you’re being realistic and tackle these weaknesses head-on.

7. Not Knowing Your Distribution Channels

Consider how you will provide your service or distribute your product and create a secure plan. Include all possible channels and explain why they’re correct for reaching your target market. Your ability to articulate your strategy for how your product or service will reach clients is vital.

8. Including Too Much Information

Most investors have a mental checklist of 10 to 12 points they’re looking for in a business plan. The purpose of your plan is not to show the depth of your knowledge but to focus on the key elements of your business. Strive for clear and concise writing. If you have more information you want to include, create an appendix.

9. Being Inconsistent

Take time to review each section of your business plan and ensure it’s consistent. Double-check your highlighted target markets, statistics, and strategies to show investors you’re well-prepared and knowledgeable.

10. One Writer, One Reader

Remember to ask several people to review your plan before submitting it. Since you’re familiar with the information, it’s easy to miss spelling and grammatical errors. Another set of eyes will help your plan look more professional and ensure it reads correctly.

Need Help with your Business Plan?

Get started on your business plan by downloading our Business Plan Template and Cashflow Forecasting Tool.

Small Business BC’s advisors will help review your business plan and provide you with feedback with our Business Plan Review Advisory Service .

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Common Mistakes to Avoid When Writing a Business Plan

Crafting a business plan is a delicate balancing act. It demands a deep understanding of your market, a clear value proposition, realistic financial projections, a competent team, and the flexibility to adapt to changing circumstances. 

All too frequently, an entrepreneur or business owner may lean on a business plan template or outsourced freelancer, bypassing the essential strategic work that needs to go behind it. This often results in a business plan that is generic and lacks the specific details and insights that make the business unique.

Remember, a good business plan is not just a document; it's a reflection of your business idea and strategy. It's an opportunity to delve deep into your business idea, understand your market, define your value proposition, and plan for your business's future.

So, whether you're a first-time entrepreneur with a new business idea or a small business owner looking to expand, here are some common mistakes made during the business planning process.

Insufficient Market Research

Market research is the foundation of business planning. It's the key to unlocking a profound understanding of your target audience, offering invaluable insights that can steer your business decisions. Without comprehensive market research, you risk basing your strategies on assumptions about your customers' needs and preferences, a misstep that can lead to expensive errors and overlooked opportunities.

In the rapidly evolving business landscape, the freshness of your data is paramount. Markets are in a constant state of flux, and data that was accurate a year ago may not hold true today. This is particularly relevant in the wake of the recent pandemic, which has caused seismic shifts across every industry. 

Therefore, it's crucial to not only use the most recent data but also understand the context behind the numbers. This involves analyzing the data in relation to your business goals, industry trends, and market dynamics. It's about asking the right questions: What do these numbers mean for your business? How do they impact your target audience? What opportunities do they present, and what challenges do they pose?

The real value of market research lies in your ability to interpret the data, identify gaps and opportunities, and apply these insights to your business strategy. It's about turning raw data into actionable intelligence that can inform your business decisions.

There's a wide array of tools at your disposal for conducting market research , from free resources to premium platforms. Government resources such as the U.S. Census Bureau can offer a wealth of insights into consumer behavior and market trends. However, for more granular and industry-specific data, you might need to turn to premium sources like IBISWorld or paid industry reports.

Artificial intelligence (AI) has emerged as a potent tool for market research. However, it's important to exercise caution when using AI for data collection. Even advanced AI tools like ChatGPT-4, with the aid of browser plugins, can sometimes provide inaccurate data. Therefore, always cross-verify the sources and accuracy of the data obtained from AI. Remember, a single oversight in your market research can undermine the credibility of your entire business plan.

Where AI truly shines is in its ability to analyze vast amounts of data swiftly and accurately, revealing patterns and trends that might be challenging to discern manually.

Beyond online research, don't underestimate the power of direct interaction with potential customers. Conducting surveys or simply engaging in conversations can offer firsthand insights into your customers' needs and preferences, often revealing valuable information that isn't readily available in online data.

Ignoring Your Target Customer

Your target audience is the lifeblood of your business. They are the people who will use your product or service, advocate for your brand, and ultimately drive your revenue. Therefore, it's crucial to understand who they are, what they need, and what they value.

Start by creating customer personas . These are detailed profiles of your ideal customers, including demographic information, interests, pain points, and buying behavior. This will help you understand your customers' needs and preferences, allowing you to tailor your business plan to meet these needs .

However, understanding your customer is only half the battle. The other half is communicating how your product or service meets their needs and adds value to their lives. This is where understanding your unique value proposition comes into play.

Your value proposition is what sets you apart from your competitors and persuades customers to choose your product or service. Highlight the unique benefits that you offer, such as superior quality, convenience, or affordability. Use clear, concise language that resonates with your target audience. Your value proposition should be the cornerstone of all your marketing efforts, from your website copy to your social media posts.

Neglecting Competitive Analysis

In the realm of business, being unaware of your competitors is a recipe for disaster. Overlooking your competitors can leave you unprepared and unable to counter their strategies effectively. As such, a comprehensive competitive analysis should be a fundamental part of your business plan.

Begin by pinpointing your primary competitors. Scrutinize their products or services, pricing strategies, marketing approaches, and customer feedback. This analysis will help you comprehend their strengths and weaknesses, and identify opportunities for differentiation.

Digital tools can be a great help in this regard. For instance, you can use AI tools like ChatGPT-4 to analyze a competitor's website and summarize its products, services, and unique value proposition. This can give you a clear idea of how your competitors position themselves in the market.

Next, delve into what customers are saying about your competitors. Online reviews on platforms like Yelp! or Google Reviews can provide invaluable insights into what customers like and dislike about your competitors' offerings. This can help you identify gaps in their products or services that you can fill.

If the competitor has a brick-and-mortar location, pay it a visit. Use your powers of observation and take note of their customer service, the arrangement of their store, their product presentations, and any other aspects that could provide insights into their operations. If your business offers a service, consider reaching out to competitors as a potential customer. This can provide valuable information about their pricing structure and sales approach.

Numerous entrepreneurs succumb to the misconception that they have no competitors because their idea is genuinely innovative. Even if your offering is revolutionary, your potential customers are currently allocating their resources elsewhere. This concept aligns with the "Jobs to Be Done" theory, which posits that customers "hire" products or services to perform specific "jobs" or fulfill certain needs. Therefore, you're competing with whatever your potential customers are currently "hiring" to do the job your product or service aims to do, whether it's a similar product, a different solution to the same problem, or even an entirely different product that accomplishes the same job. These constitute your indirect competitors, and comprehending them is just as vital as understanding your direct competitors.

By meticulously examining your direct and indirect competitors, you can start to identify areas where you can distinguish yourself. Your competitive edge lies in the unique traits or abilities that make your business outshine others in your market. This advantage could be derived from your groundbreaking technology, exclusive processes, exceptional team, or a strong brand reputation.

To convey your competitive advantage, your business plan must express how you plan to capitalize on it. This could involve showcasing your innovative technology, underscoring your team's expertise, or demonstrating your brand's solid reputation. Remember, business is a competition, and your goal is to win by convincing customers to choose you over your competitors.

Forgetting The Goal

Different stakeholders have different expectations and requirements from a business plan. For instance, a bank looking at your business plan for a loan application will have different criteria than a potential investor considering an equity investment.

A bank is primarily concerned with your ability to repay the loan. They will focus on your financial projections, cash flow, and collateral. They want to see that your business is stable and has a reliable source of income to service the debt. Therefore, when writing a business plan for a bank , you should emphasize your financial stability and risk management strategies.

On the other hand, an investor is looking for growth potential and a return on their investment. They are interested in your business model, market opportunity, competitive advantage, and exit strategy. They want to see that your business has the potential to scale and deliver a significant return. Therefore, when writing a business plan for an investor , you should highlight your growth strategy and potential return on investment.

Your internal strategic plan, however, serves a different purpose. It's a tool for setting your business goals, defining your strategies for achieving them, and identifying metrics for measuring your progress. It's more detailed and operational than a business plan for external stakeholders. It includes specific tasks, responsibilities, and timelines. Therefore, when writing an internal strategic plan, you should focus on your operational plans and key performance indicators (KPIs).

The language and tone of your business plan should also be adapted to your audience. A business plan intended for a bank or potential investors should be formally written and highly professional, while an internal strategic plan can be more straightforward, using bullet points and an iterative approach that allows for adjustments as needed.

Finally, consider how you'll present your business plan. Banks may not require a highly visual presentation and might prefer a more traditional, text-heavy document. Investors, on the other hand, value more impact, such as a pitch deck or a well-designed executive summary that can help them quickly understand your business model and growth potential.

Being Unrealistic About Your Financial Projections

When it comes to financial projections, achieving a balance between optimism and realism is key. It's crucial to demonstrate to investors that your business has the potential for success, but it's equally important to show that you have a clear understanding of the market and your financials. Overly optimistic projections can raise red flags for investors, leading them to question your financial management skills and decision-making abilities. Conversely, overly conservative projections may make your business appear less appealing and unlikely to yield substantial returns.

Thorough research, market trend analysis, and expert consultation are crucial to creating realistic and achievable financial projections that align with your business goals. By doing so, you gain confidence from lenders and investors and increase the likelihood of securing funding for your business.

To estimate your revenue, consider factors like your pricing strategy, sales volume, and market size. It's important to be conservative in your estimates and consider a sensitivity analysis with best-case and worst-case scenarios.

When forecasting your revenue, consider whether to a bottom-up or a top-down approach . A bottom-up approach starts with the unit sales (like a single product sale) and scales up, while a top-down approach starts with the total market size and estimates what portion of that market you can capture. Both approaches have their merits and can provide valuable insights when used together.

Fixed expenses, such as rent and salaries, remain constant regardless of your business activity, while variable costs, like raw materials and shipping, fluctuate depending on your business activity. By accurately estimating your revenue and expenses , you can create a realistic budget that helps you avoid financial pitfalls.

Don't stop with just the financial forecast, because that alone is only part of your financial health. Your cash flow projection should include your expected cash inflows from sales and other sources, and your expected cash outflows for expenses and investments. This will help you anticipate periods of negative cash flow and plan for contingencies.

In your financial planning, be sure to assess the company's break-even point, which is when your total revenue equals your total costs, and demonstrates the point at which your business becomes profitable. 

Neglecting the Importance of Your Team

Your team members are more than just employees; they are the catalysts propelling your business's growth and development. When investors, lenders, and other stakeholders scrutinize your business plan, they are looking for a team that is not only skilled and experienced but also cohesive and committed.

Begin by introducing each key team member. Include their name, role, and a brief biography that highlights their relevant skills and experience. The qualifications of your team should extend beyond their educational background and work history. Emphasize their unique "soft skills" and other talents that make them indispensable to your business. Consider their history of success and how their past experiences can contribute to the growth of your business.

Moreover, the cohesion of your team is equally significant. Illustrate how your team members' skills complement each other and how they work collectively to achieve your business goals.

If you haven't assembled your team yet, discuss your plans for recruitment and training. Outline the qualities and skills you're looking for in potential team members, and explain how you plan to attract and retain top talent. Discuss your strategies for fostering a positive and productive work environment, and how you plan to train your team to ensure they have the skills and knowledge needed to succeed.

Thinking Your Business Plan is Done

Your business plan is a dynamic document that should mirror your evolving business reality and market conditions. It's not a one-off task, but an ongoing process that demands regular review and revision.

To ensure your business plan remains pertinent and effective, it should be reviewed and updated regularly. Establish a review schedule, such as quarterly or annually, and adhere to it. During each review, evaluate your progress towards your goals, identify any shifts in your market or industry, and adjust your strategies accordingly.

Market trends fluctuate, new technologies surface (looking at you AI), and customer preferences change. Keep your finger on the pulse of market trends and disruptions, and be prepared to seize new opportunities as they emerge. This could involve embracing new technologies, penetrating new markets, or pivoting your product or service. By being proactive and adaptable, you can convert market changes and opportunities into a competitive edge.

If your current strategy isn't working, or if new opportunities arise, your business plan should guide you in knowing how and when you need to pivot . This might involve changing your target market, adjusting your product or service, or adopting a new business model. By being flexible and responsive, you can ensure your business remains competitive and resilient in the face of change.

By steering clear of these common mistakes, you can craft a business plan that is comprehensive, compelling, and convincing to your stakeholders. A well-constructed business plan not only aids in attracting funding and customers but also serves as a roadmap for your business's success. Invest the time to do it right, and your business will reap the rewards.

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The Most Common Business Plan Pitfalls and How to Avoid Them

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Every company benefits from an updated business plan. While it seems necessary for start-ups, it applies to established firms, too. An efficiently written business plan keeps the whole business on track in the process of execution of the company’s strategy and reaching its business goals. Business plan mistakes can result in anything ranging from small oversights to fatal errors for your business. It is even more important for the business who are at the funds raising stage, so the information they provide is accurate and none of your ideas are misleading and are in tune with the current market. To help you avoid your business plan from being discarded, here are some of the critical business plan mistakes to be careful with:

• Long and bulky Executive Summary The readers of business plan such as investors, bank institutions and key vendors start considering your business idea from reading the executive summary. Executive summary is a highlight of the most important items of your business plan in a concise but informative way. It should succinctly describe your compelling story on how a highly skilled team will deliver products or services to precisely defined target markets based on a consistent strategy. Besides, it should state the company’s value proposition on how their products or services will change the life of its customers for the better in a profitable way. In fact, many executive summaries are boring and state some business idea whose execution remains vague. Often, it is presented as just cut and paste of some sections from the introduction and some other parts of business plan. Therefore, there are high chances of the busy investor to move on to the next proposal, if executive summary does not provide a clear, convincing, and persuasive overview of the business.
• Attaching your value proposition to dated technology or dwindling markets When formulating in your business plan the opportunity you see for a product or service, you need to question it and can’t just assume that the idea has automatic demand in the real world. A professionally written business plan will assure you are setting up your business for success. This implies that you must develop a value proposition of your product or service that will change an emerging or existing market. Those markets that are shrinking or are being replaced by new industries will make it incredibly challenging for you to get funding. For instance, what would your reaction be if someone developed waterproof ink for typewriter ribbons? You wouldn’t necessarily be amazed, because the number of people looking to buy something like that is miniscule.
• Not knowing the target audience and segments A product or service that is everything to everyone does not exist. If that were so, we would all be using the same phone. In fact, your product or service is specific and advantageous to an ideal type of customer. Without defining your target market, you cannot reason how you will handle the fierce competition. There are competitors who are providing the same product and service. Investors trust their funds to companies that have completed and gained a complete knowledge of primary and secondary market. You must define your target market and outline how you will target this audience.
• Having unrealistic and aggressive growth projections Having read the executive summary, many investors jump straight to the financial section of the business plan. It is important that the assumptions and projections in this section to be realistic. Plans that show sales forecast, operating margin and revenues that are poorly reasoned, internally inconsistent or simply unrealistic significantly damage the credibility of the entire business plan. In opposite, sober, well-supported financial assumptions and projections communicate operational maturity and credibility. Benchmarking is an especially useful tool to use in your financial analysis. By comparing and basing your projections on the financial performance of public companies within your marketplace, you can prove that your assumptions and projections are achievable. Planium Pro makes your life easier in that regard. Finance section of the Planium Pro’s software provides an easy and quick benchmarking tool for a variety of industries so you can efficiently measure your projections and key ratios against your market averages.

• Acknowledging your competitors, but not researching them Many new businesses are too much inward-focused. Being confident about your product or service is certainly a good attitude. But there is risk that this could twist your idea of how it correlates with products and services of competitors who have been in the market for some time. Besides, quite often entrepreneurs also miss or underestimate the possibility of new entrants who could increase competitive pressure. Our recommendation is to learn as much as you can about the people you’re going up against and perform Competitor Analysis, based on their pricing, quality, service and distribution channels. Knowing this information helps you prepare your own strategy to differentiate your business from theirs.

Next Steps • Keep these critical mistakes in mind when writing your business plan. • If you have already started writing your plan, use Planium Pro software to ease your preparation and streamline the process. Join our Planium Pro to see all the benefits yourself. Read More We would be interested to receive comments from small-business owners on what mistakes you have made in business plan writing and how you fixed them.

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Start » business ideas, 5 common sense reasons to write a business plan and 7 mistakes to avoid.

Still not sure if you need a business plan? We tell you why you need one and how to avoid the most common business plan mistakes.

Whether you're seeking investors, financing or simply keeping a focus on company goals, it's important that you write a business plan.

Here are five reasons you should write a business plan before you start planning to launch your startup. A business plan will help you:

Keep sight of your vision. In the course of starting a business, you might get bogged down by small details and forget some of the larger priorities. Writing a business plan at the start of forming your business helps you capture that vision that can keep as a written reference point.

Obtain an understanding of your market. Exploring the hard data on an industry you are thinking of joining will give you perspective on where you fit into the market and what you have to do to achieve greater market share.

Identify and understand your competition. Doing a deep dive on your competitors may help you realize ways to make your business more successful, or give you ideas on how to improve.

Set goals and benchmarks. A comprehensive understanding of your financials will permit you to set measurable goals and determine what moves you should make at certain times.

Confirm the math. If you have only a vague idea of what you need to be profitable, going through the exercise of putting together a business plan will help you firm up your numbers so you can make smart business decisions.

Writing a business plan at the start of forming your business helps you capture that vision that can keep as a written reference point.

Business plan mistakes to avoid

You want to put your best foot forward when it comes to introducing your business to people who are not already familiar with it. Reading your business plan may be the first interaction that a potential investor, lender or other interested party has with your company. When writing your business plan, you should avoid the following:

Poor grammar and wording. Not every business person is an eloquent writer, but that’s not an excuse for errors in your text. Seek the help of an editor to review the plan, especially if you struggle with grammar and verbiage. Enlist additional reviewers, such as friends, family, business partners, an attorney or a financial advisor to look over the plan for content, as well. An outside observer will help point out where you need to explain things.

An off-putting style. In a professional business plan, you want to show that you know your stuff. This means avoiding conversational, folksy or funny wording. Instead, you want to be authoritative and realistic to prove that you have a handle on your industry and are reliable. Find other ways of portraying your personality throughout the plan, perhaps through your descriptions of key members of your team or in the company description. Don’t be afraid to showcase what sets you apart, but be sure to do so tastefully and professionally.

Sloppy format. Structure the business plan with clear and defined sections that are easily understandable. Font, style, spacing and margins should be kept consistent. Include supplemental materials, like charts or graphs, in such a way that they do not interrupt the narrative you are building.

Being too vague or too detailed. The business plan should display your aptitude and understanding of your business, just enough where you are not burying your reader in detail or leaving something to be desired. This means you need to understand exactly what your reader needs to know. Being too vague will squander that opportunity. If you feel you have too much information, however, you can always attach supporting documents in an appendix.

Assumptions. Business plans are built on facts. Have your research in order so you’re not basing assertions on assumptions. That will make the plan seem thin and will likely not accomplish your goals.

Ignoring risks. Every business plan should address the risks of starting a business head on. Not stating these risks and how you plan to cope with them can make you or your plan seem naive. Include a contingency plan for how to handle changes in the market.

Ignoring the customer. It's important to get across why you love your business, but you have to bring it back to how your business benefits your customers. Not talking about the customer is a huge oversight when developing a business plan.

See our Complete Guide to Writing a Business Plan

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Top 10 Business Plan Mistakes When it comes to creating a business plan that attracts investors, these tips will help you get it right the first time.

Every business should have a business plan. Unfortunately, despite the fact that many of the underlying businesses are viable, the vast majority of plans are hardly worth the paper they're printed on. Most "bad" business plans share one or more of the following problems:

1. The plan is poorly written. Spelling, punctuation, grammar and style are all important when it comes to getting your business plan down on paper. Although investors don't expect to be investing in a company run by English majors, they are looking for clues about the underlying business and its leaders when they're perusing a plan. When they see one with spelling, punctuation and grammar errors, they immediately wonder what else is wrong with the business. But since there's no shortage of people looking for capital, they don't wonder for long--they just move on to the next plan.

Before you show your plan to a single investor or banker, go through every line of the plan with a fine-tooth comb. Run your spell check--which should catch spelling and punctuation errors, and have someone you know with strong "English teacher" skills review it for grammar problems.

Style is subtler, but it's equally important. Different entrepreneurs write in different styles. If your style is "confident," "crisp," "clean," "authoritative" or "formal," you'll rarely have problems. If, however, your style is "arrogant," "sloppy," "folksy," "turgid" or "smarmy," you may turn off potential investors, although it's a fact that different styles appeal to different investors. No matter what style you choose for your business plan, be sure it's consistent throughout the plan, and that it fits your intended audience and your business. For instance, I once met a conservative Midwest banker who funded an Indian-Japanese fusion restaurant partly because the plan was--like the restaurant concept--upbeat, trendy and unconventional.

2. The plan presentation is sloppy. Once your writing's perfect, the presentation has to match. Nothing peeves investors more than inconsistent margins, missing page numbers, charts without labels or with incorrect units, tables without headings, technical terminology without definitions or a missing table of contents. Have someone else proofread your plan before you show it to an investor, banker or venture capitalist. Remember that while you'll undoubtedly spend months working on your plan, most investors won't give it more than 10 minutes before they make an initial decision about it. So if they start paging through your plan and can't find the section on "Management," they may decide to move on to the next, more organized plan in the stack.

3. The plan is incomplete. Every business has customers, products and services, operations, marketing and sales, a management team, and competitors. At an absolute minimum, your plan must cover all these areas. A complete plan should also include a discussion of the industry, particularly industry trends, such as if the market is growing or shrinking. Finally, your plan should include detailed financial projections--monthly cash flow and income statements, as well as annual balance sheets--going out at least three years.

4. The plan is too vague. A business plan is not a novel, a poem or a cryptogram. If a reasonably intelligent person with a high school education can't understand your plan, then you need to rewrite it. If you're trying to keep the information vague because your business involves highly confidential material, processes or technologies, then show people your executive summary first (which should never contain any proprietary information). Then, if they're interested in learning more about the business, have them sign noncompete and nondisclosure agreements before showing them the entire plan. [Be forewarned, however: Many venture capitalists and investors will not sign these agreements since they want to minimize their legal fees and have no interest in competing with you in any case.]

5. The plan is too detailed. Do not get bogged down in technical details! This is especially common with technology-based startups. Keep the technical details to a minimum in the main plan--if you want to include them, do so elsewhere, say, in an appendix. One way to do this is to break your plan into three parts: a two- to three-page executive summary, a 10- to 20-page business plan and an appendix that includes as many pages as needed to make it clear that you know what you're doing. This way, anyone reading the plan can get the amount of detail he or she wants.

6. The plan makes unfounded or unrealistic assumptions. By their very nature, business plans are full of assumptions. The most important assumption, of course, is that your business will succeed! The best business plans highlight critical assumptions and provide some sort of rationalization for them. The worst business plans bury assumptions throughout the plan so no one can tell where the assumptions end and the facts begin. Market size, acceptable pricing, customer purchasing behavior, time to commercialization--these all involve assumptions. Wherever possible, make sure you check your assumptions against benchmarks from the same industry, a similar industry or some other acceptable standard. Tie your assumptions to facts.

A simple example of this would be the real estate section of your plan. Every company eventually needs some sort of real estate, whether it's office space, industrial space or retail space. You should research the locations and costs for real estate in your area, and make a careful estimate of how much space you'll actually need before presenting your plan to any investors or lenders.

7. The plan includes inadequate research. Just as it's important to tie your assumptions to facts, it's equally important to make sure your facts are, well, facts. Learn everything you can about your business and your industry--customer purchasing habits, motivations and fears; competitor positioning, size and market share; and overall market trends. You don't want to get bogged down by the facts, but you should have some numbers, charts and statistics to back up any assumptions or projections you make. Well-prepared investors will check your numbers against industry data or third party studies--if your numbers don't jibe with their numbers, your plan probably won't get funded.

8. You claim there's no risk involved in your new venture. Any sensible investor understands there's really no such thing as a "no risk" business. There are always risks. You must understand them before presenting your plan to investors or lenders. Since a business plan is more of a marketing tool than anything else, I'd recommend minimizing the discussion of risks in your plan. If you do mention any risks, be sure to emphasize how you'll minimize or mitigate them. And be well prepared for questions about risks in later discussions with investors.

9. You claim you have no competition. It's absolutely amazing how many potential business owners include this statement in their business plans: "We have no competition."

If that's what you think, you couldn't be further from the truth. Every successful business has competitors, both direct and indirect. You should plan for stiff competition from the beginning. If you can't find any direct competitors today, try to imagine how the marketplace might look once you're successful. Identify ways you can compete, and accentuate your competitive advantages in the business plan.

10. The business plan is really no plan at all. A good business plan presents an overview of the business--now, in the short term, and in the long term. However, it doesn't just describe what the business looks like at each of those stages; it also describes how you'll get from one stage to the next. In other words, the plan provides a "roadmap" for the business, a roadmap that should be as specific as possible. It should contain definite milestones--major targets that have real meaning for your business. For instance, reasonable milestones might be "signing the 100th client" or "producing 10,000 units of product." The business plan should also outline all the major steps you need to complete to reach each milestone.

Smoothing Out the Rough Spots Once you know what mistakes not to make, there are still a few steps you need to take to make your business plan "bulletproof." Be sure you . . .

• Think it through. You might have a great idea, but have you carefully mapped out all the steps you'll need to take to make the business a reality? Think about building your management team, hiring salespeople, setting up operations, getting your first customer, protecting yourself from lawsuits, outmaneuvering your competition, and so on. Think about cash flow and what measures you can take to minimize your expenses and maximize your revenue.
• Do your research. Investigate everything you can about your proposed business before you start writing your business plan--and long before you start the business. You'll also need to continue your research while you write the business plan, since inevitably, things will change as you uncover critical information. And while you're researching, be sure to consult multiple sources since many times the experts will disagree.
• Research your potential customers and competitors. Is your product or service something people really want or need, or is it just "cool"? Study your market. Is it growing or shrinking? Could some sort of disruptive technology or regulatory change alter the market in fundamental ways? Why do you think people will buy your product or service? If you don't have any customers or clients yet, you'll need to convince investors that you have something people really want or need, and more important, that they'll buy it at the price you expect.
• Get feedback. Obtain as much feedback as you can from trusted friends, colleagues, nonprofit organizations, and potential investors or lenders. You'll quickly find that almost everyone thinks they're an expert and they all could do a better job than you. This may be annoying, but it's just part of the feedback process. You'll know when you're done when you've heard the same questions and criticisms again and again and have a good answer to almost everything anyone can throw at you.
• Hire professional help. Find a professional you trust to help guide you through the entire process, fill in knowledge gaps (for instance, if you know marketing but not finance, you should hire a finance expert), provide additional, unbiased feedback, and package your plan in an attractive, professional format.

Writing a business plan is hard work--many people spend a year or more writing their plan. In the early, drafting stages, business plan software can be very helpful. But the hard part is developing a coherent picture of the business that makes sense, is appealing to others and provides a reasonable road map for the future. Your products, services, business model, customers, marketing and sales plan, internal operations, management team and financial projections must all tie together seamlessly. If they don't, you may not ever get your business off the ground.

Andrew Clarke is the CEO of Ground Floor Partners , a business consulting firm that helps early-stage, small and middle-market businesses grow through design and execution of sound business strategies.

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Common Business Plan Mistakes

Many startup business plans have the same errors. It seems new business owners have gone through a list of common business plan errors and checked them off! Here's is a list of what to avoid, so you don't make the same mistakes.

What a Lender Wants in a Business Plan

A lender wants to know only two things:

• How much money do you want?
• How will you pay it back?

That's it. Everything else is just fluff. You don't need a 200-page business plan to tell a potential lender this. Remember KISS - Keep it short and simple. In the thousands of business plans that have been reviewed over the years, these are the most common errors:

Not Using Third Person 

Write as if you were not the business owner, but a hired writer talking about the business. Saying, for example, "XYZ Corporation will open its doors on September 1, 2010...." not "We will open our doors ...." The third person (he, she, it, they) sounds more professional and business-like and banker-friendly. If you use the first person, you tend to sound like a cheerleader and less like a reasonable person. I know it seems picky; just trust me on this one.

Not Checking Numbers 

If your executive summary states you want $158,000 and your financial statements show you need $190,000, your banker will question your competence. Every number must match in every section of the business plan. 

Another example, if you discuss having three employees, but your cash flow shows only salary/benefits for one, you have consistency errors. Have someone go through the plan before you send it out, just to look at all the numbers and make sure they match every time they are used.

Another problem with numbers is being vague with numbers. Don't say, "We'll make a profit soon." What does "soon" mean? In a year? Three years? Some experts say six months to make a profit is a minimum, while others state that three years is a minimum . Of course, it depends on the type of business. In advertising, don't say, "We will spend money on advertising." You should know how much you will be spending over the first year at least. Include details in your narrative as well as in your projections. 

If you can't be specific, skip the sentence. 

Not Making Sure Everything Is Perfect 

I have caught lots of typographical errors, misspellings, sentence fragments, and other small and large mistakes in business plans. For example, one plan I viewed switched fonts several times, back and forth from Arial to Tahoma; another plan changed from the first person to the third person. In another document, photos or graphs were on the wrong pages from what the narrative said they were. Having errors in your business plan sends a message to your lender that you don't care about the details.  

Being Too Optimistic 

A lender wants realistic, not overly optimistic. For example, over-estimate your expenses and underestimate your income. A lender wants to see what will happen if your "worst case" scenario happens. Use meaningful charts, graphs, financial statements, or spreadsheets to show what your cash flow will look like. Include a break-even analysis , so the lender can see how and when you will start making a profit. Don't spend pages telling how wonderful your business it; talk about how it will provide a benefit to your customers and how it is different from the competition.

Confusing Cash with Profits

Your business can be profitable and you can have no cash. Without positive cash flow over a period of time, your business will not have solvency (ability to pay its bills) or long-term viability (survival). No cash means that business loan isn't going to get paid back and you close your doors. Show how your cash flow will support your loan payment.

Leaving Questions Unanswered 

Don't assume your lender knows about your business. Pretend he or she is an idiot (not necessarily untrue, in many cases), at least about the business you are going into. Have someone who is not in your business read the business plan and ask you questions. Then put those questions into the plan in the appropriate place. If confused customers don't buy, confused bankers don't lend.

Not Including an Executive Summary 

Business loans often go up the line in a bank, and the higher up executives want to know the "bottom line." Just tell them (1) A sentence or two about your business, (2) How much you need, in numbers or a simple chart, and (3) How you expect to pay back the loan. That's it. One to two pages is all you need for the executive summary. Put it at the beginning, so the reader doesn't have to search for it. 

How to Fix these Errors

Most of these errors can be avoided by having several people read your plan. Ask each person to review a specific item above and tell them what to look for. Get a good grammarian/writer to review the plan. Remember, there is no second chance to make a good first impression.

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Seven Common Business Plan Mistakes

Though every small business is unique, many successful ones start with a common foundation: a business plan. Researching and writing a business plan is an important step in laying out the road map your business will travel, and an indispensable step in securing funding for startup costs or growth. Save time and energy by avoiding these common business plan mistakes.

Seven top business plan mistakes:

1. Not making one

As an entrepreneur, surely you’re more excited about doing the thing you want to do that writing a plan about it. But recall the wisdom of Yogi Berra: “If you don’t know where you’re going, you’ll end up somewhere else.” Without a plan, you’re likely to spend valuable time and energy pursuing fruitless paths and spreading yourself thin. Make completing your plan a priority to focus your energy, stay on the right path, and improve your chances of landing a small business loan.

2. Being unrealistic

This can happen on a number of fronts if you’re not willing to ask hard questions, do concrete research, and be honest with yourself. Your business plan can’t represent the best case scenario or the way you hope things go: it has to grapple with the reality of the marketplace, financial truths, and the entrepreneurial landscape. Focus on being realistic in a few key areas:

• Financial projections:  Don’t pad or overinflate your future earnings projections. At best, you’ll look like you don’t know what you’re doing and a bank won’t trust you enough to lend you money. At worst, they’ll lend you the money and you’ll go into default or bankruptcy.
• Competition:  A big red flag in many business plans is a belief that you have minimal competition — or even none. “You’re always competing for dollars,” said RISBDC counselor Manuel Batlle. Even if your product is unique, your target customers still have choices about what to do with their money. You must address how you will persuade your target market to give their dollars to you .
• Market research:  It doesn’t matter what you want to build or sell. Someone has to be willing to buy it for a price that makes it worth selling. No business plan is complete without investing time and energy in up-to-date market research to truly understand market trends, customer interest, competitor performance, and other aspects of product or service viability.
• Customer base for brick and mortar businesses:  Your mother may be willing to drive across the state to buy a soda from you, but probably no one else will. For many products and services, your customers are going to be local. Particularly in Rhode Island, customers may be  searching within walking distance, or a 5-10 minute drive. Dig deep into the census information on demographics in your area and be realistic about how many target customers are within buying distance.

3. Poor executive summary

A lender will read your business plan’s executive summary and “give it the sniff test, then the gut test,” said RISBDC business counselor Josh Daly. The lender may decide whether or not to continue reading based on what their intuition tells them. So the executive summary is worth focusing on. Someone without a deep business background should be able to understand it, and it should make the case that your business is viable in short, clear points. Daly recommends 1-3 sentences each on your business background, customer base, the market, the competition, your qualifications, and your team. A concise summary should fit into about two pages and convince your audience to keep reading. If your plan is focused on securing financing, prospective lenders should immediately know how much money you are looking to borrow and how the money will be used.

4. Too long

For a majority of small businesses, a succinct and well-organized business plan should be 5-10 pages long. An engaging business plan includes visuals, where appropriate, to avoid wordiness when a graph, chart, or map will tell the story more effectively. Additional supporting financial projections or research data can go in an appendix. Plans that are significantly longer don’t necessarily give more or better information, and they risk losing their audience before they’re actually read.

5. Not backing up what you say

Along with being realistic in discussing your projections and your market research, you also need to make sure you’re using data and references — not just anecdotes — to support what you’re claiming.

6. Not focusing on the team, and your role as the head

No small business owner has every skill and personality trait needed to take a business all the way from the seed of an idea, to the world, all by him or herself. It’s appropriate and important to identify and address gaps in your experience and education, and explain how you’ll overcome them. It’s also crucial to briefly introduce your top team members, sell their contributions to your company, and portray how together, your team is well-rounded and ready to tackle the challenges ahead.

7. Sloppy mistakes

Typos, grammatical errors, and poor formatting are completely avoidable enemies, taking the shine off your first impression. Your business plan needs to look professional because it’s going to speak for you. Use spell-check. Re-read your plan. Get lots of sleep and re-read it again. Then, even if you’re a great writer and a stickler for detail, have someone else check it over for things you’ve missed. Never underestimate the value of a pair of fresh eyes.

Though you should be ready to put time and effort into your business plan, you don’t have to do it alone. The RISBDC offers workshops and no-cost, one-on-one business counseling to help you refine your plan and take the next steps toward business success.

10 Common Business Plan Mistakes and How to Avoid Them

There is plenty of information available via books and seminars on how to write a good business plan. And yet, many companies, especially start-ups, make serious mistakes in business plan writing that could have been avoided with more knowledge and effort.

As a business plan contest reviewer, I see a number of typical mistakes coming up again and again. Here are 10 of the most common business plan mistakes I have come across:

1. Boring Executive Summary

Investors, bankers, and other business plan readers usually start looking at the executive summary. It should highlight the most important points of the business plan in a pithy way. The business plan should provide a convincing story on how a a highly competent team will provide products or services to precisely defined target markets based on a consistent strategy. Moreover, it should share the company’s vision on how their products or services will make the world of their customers better in a profitable way.

In reality, many executive summaries are lackluster and incomplete summaries of a business idea whose implementation remains unclear. Sometimes, it is just cut and paste of some sections from the introduction and some other parts.

Losing the busy reader already in this part could mean that investors never care to go through the whole document. They may be missing some hidden gems. However, it is the job of the business plan writer to present these gems convincingly in the executive summary.

2. Lack of Focus

Many business plans are lacking a clear focus in defining their target markets and how the envisage products and services are competitive in serving the market needs better than others. Especially for innovative start-ups there is a risk of not focusing enough on a clearly define product/service segment and target market.

The result are often business plans describing a ‘me too’ business whose reason for existence does not become clear, not to speak of electrifying potential investors or customers.

3. Superficial Definition of Target Customers

Understanding who your target customers are and how your product adds value for them is crucial. That includes a granular segmentation of target customers and how the company’s products and services will satisfy the different needs of these different customer groups.

Many business plans, however, keep the definition of target customers very general. For example, saying that your travel app is aimed for everyone who is traveling may sound great first, because this is a very large number of people. However, different groups of travelers have different needs. Without clearly defining these needs in a differentiated way, the result will either be an app with the lowest common denominator of functionality needed by most, or it may be at risk of becoming overly complex, as it tries to please everyone.

4. Overly Optimistic Evaluation of Market Size and Opportunities

Entrepreneurs need to be optimistic to start a business in the first place. However, there is fine line between being upbeat about your business prospects and presenting a distorted view of the market size which is more driven by dreams than data. It can be related to a superficial definition of the target customers. If you think, for example, that 20% of all travelers worldwide will use your app, you would need to have a lot of supporting evidence to credibly convey how you will achieve that. It is not bad for an entrepreneur to think big. However, if you, for example, overestimate the readiness of people to buy your product, you may end up with dream figures you cannot achieve.

5. Underestimating the Competition

Many start-ups are too much self-centered. Being convinced of your product or service is certainly a good attitude. However, there is risk that this could distort your view of how it matches up against products and services of competitors who have been in the market for some time. In addition, some entrepreneurs also overlook or underestimate the possibility of new entrants who could increase competitive pressure.

6. Underestimating Business Risks

Understandably, entrepreneurs focus on exploiting opportunities. Some, however, underestimate or even neglect serious business risks that could endanger the existence of the company. Ignoring the risks will not make them disappear. Instead, it will leave the company unprepared, if a risk materializes. Apart from risk caused by changing demand trends, increasing competition, or unexpected increase of production there are also political and regulatory risks to be considered. If you have, for example, an export-oriented business, you need to take into account global trends like increasing protectionism and regulatory barriers in your target markets.

7. Too Detailed Description of the Product or Service

Especially innovative technology start-ups, often led by engineers, are really excited about the technical details of their product or service. It is part of a credible story to provide enough details so the reader understands that the product or service is well designed. However, if it drifts into jargon and technical details not relevant for understanding the business impact or innovative edge of a product, then details can become a distraction or even barrier, putting off the reader.

8. Unrealistic Financial Projections

This mistake is related to false assumptions on, for example, market size, competitive pressure, and financial risks. Nobody knows the future, and projections can, thus, not be exact. However, they can be based on real data related to general market trends and past revenue and cost development.

9. Unconvincing Presentation of the Executive Team

Quite often, there are just a couple of portrait photos and CVs pasted into the business plan without explaining to the reader, why exactly this team is complementary in their competencies specifically for running the particular business presented in the plan. Investors can get very critical, if they see that important competencies in an executive team are lacking. For example, if a group of engineers without business experience is launching a start-up, there will be questions on how competence gaps in areas like financial management and marketing will be covered.

10. Lack of Review

A team working enthusiastically on a business plan is at risk of false, overly optimistic assumptions and other mistakes that can easily be overlooked, if you are immersed in the process. Thus, not having a review of the business plan by an experienced consultant or a friendly business partner who has been there can lead to mistakes with detrimental effects. A review can help find flaws in the overall business rationale, market and customer definition, or the financial projections. Even if you are not looking for external funding, not having your business plan reviewed is a serious omission.

How to Avoid Business Plan Mistakes

The simple answer would be to be aware of these mistakes and make sure not to do them. However, it is not that easy. Even if you are aware of potential mistakes, it does not automatically mean you are capable of avoiding them. It is like with people who have bad eating habits. They know all about healthy eating and are fully aware of their mistakes. And yet the still continue making these mistakes.

This is where coaching comes in. You can either try self-coaching in the executive team, which requires a high level of awareness, openness and self-distance. Or you can hire an external coach to help you discover your blind spots, become aware of unproductive habits and attitudes like, e.g., over-optimism, and change them.

I would be interested to receive comments from entrepreneurs on what mistakes they have made in business plan writing and how they fixed them.

• Entrepreneurship

6 Common Mistakes to Avoid in Business Planning

Every business needs a plan, but not all plans are created equal. Business planning is a critical process that requires thorough research, careful consideration, and strategic thinking. Unfortunately, many entrepreneurs make mistakes that can significantly impact their business’s success. In this article, we will discuss six common mistakes to avoid in business planning, so you can create a solid plan that sets your business up for success.

1. Failing to Define Your Target Market

One of the most common mistakes in business planning is failing to define your target market. Without a clear picture of who your customers are, it’s impossible to create an effective marketing strategy or develop products that meet their needs. To avoid this mistake, conduct market research to identify your ideal customer’s demographics, preferences, and pain points. Use this information to create a buyer persona that guides your business decisions.

In addition to defining your target market, it’s also essential to identify your competition. Analyze their strengths and weaknesses, and use this information to differentiate your business from theirs. A SWOT analysis can help you identify your business’s internal strengths and weaknesses and external opportunities and threats.

2. Setting Unrealistic Goals

Another common mistake in business planning is setting unrealistic goals. While it’s important to have ambitious goals, they must be achievable. Setting unrealistic goals can lead to disappointment, frustration, and loss of motivation. To avoid this mistake, set SMART goals that are specific, measurable, achievable, relevant, and time-bound.

When setting goals, consider your business’s strengths and weaknesses, market trends, and competition. Use data to inform your decisions, and track your progress regularly. Celebrate your successes and use your failures as opportunities to learn and improve.

3. Underestimating the Importance of Cash Flow

Cash flow is the lifeblood of any business, and it’s essential to manage it effectively. Many entrepreneurs make the mistake of underestimating the importance of cash flow, leading to financial difficulties and even failure. To avoid this mistake, create a cash flow forecast that projects your income and expenses over a specific period.

Use this forecast to identify potential cash flow problems and take proactive steps to address them. For example, you may need to reduce expenses, improve collections, or negotiate better payment terms with suppliers. Regularly review your cash flow forecast and adjust it as necessary to ensure your business’s financial health.

4. Neglecting to Create a Marketing Plan

Marketing is critical to any business’s success, but many entrepreneurs make the mistake of neglecting to create a marketing plan. Without a plan, you may struggle to reach your target market, which can lead to slow sales and revenue growth. To avoid this mistake, create a comprehensive marketing plan that includes your target market, messaging, channels, and tactics.

Your marketing plan should be aligned with your business goals and budget. Use data to inform your decisions, and track your results regularly. Adjust your plan as necessary to optimize your marketing efforts and achieve your business goals.

5. Overlooking the Importance of Human Resources

Human resources are essential to any business’s success, but many entrepreneurs overlook their importance. Neglecting human resources can lead to poor employee morale, high turnover rates, and legal issues. To avoid this mistake, create a human resources plan that includes hiring, training, compensation, benefits, and compliance.

Invest in your employees’ development and well-being, and create a positive workplace culture that fosters collaboration, innovation, and growth. Regularly review and update your human resources plan to ensure it meets your business’s changing needs.

6. Failing to Monitor and Evaluate Your Plan

Finally, many entrepreneurs make the mistake of failing to monitor and evaluate their business plan regularly. Without regular monitoring and evaluation, you may miss opportunities for improvement or fail to address potential problems. To avoid this mistake, create a plan for monitoring and evaluating your business plan regularly.

Set key performance indicators (KPIs) that measure your progress toward your goals, and track them regularly. Use your KPIs to identify areas for improvement and take proactive steps to address them. Regularly review and update your business plan to ensure it remains relevant and effective.

In conclusion, business planning is critical to any business’s success, but it’s essential to avoid common mistakes that can impact your plan’s effectiveness. By defining your target market, setting realistic goals, managing your cash flow, creating a marketing plan, investing in human resources, and monitoring and evaluating your plan regularly, you can create a solid plan that sets your business up for success.

Frequently Asked Questions

What are some common mistakes to avoid in business planning.

When it comes to business planning, there are several mistakes that entrepreneurs often make. One common mistake is failing to conduct thorough market research. Without understanding your target customers and competitors, it’s difficult to create a successful business plan. Another mistake is being overly optimistic with financial projections. It’s important to be realistic and conservative when forecasting revenue and expenses.

Another mistake is not having a clear and concise value proposition. This is a statement that explains what your business does and what makes it unique. A lack of a clear value proposition can make it difficult to attract customers and investors. Additionally, not having a contingency plan or backup strategy can put your business at risk if unexpected challenges arise.

How can I avoid making these mistakes in my business planning?

The best way to avoid these common mistakes is to be diligent and thorough in your planning process. Take the time to conduct market research and gather data about your target audience and competitors. Use this information to refine your business idea and create a compelling value proposition.

When creating financial projections, be conservative and realistic. Take into account potential challenges and unexpected expenses. It’s also important to have a contingency plan in place in case things don’t go as planned.

Finally, consider seeking the advice and guidance of experienced entrepreneurs or business advisors. They can provide valuable insights and help you avoid common pitfalls in your business planning.

Why is market research important in business planning?

Market research is important in business planning because it helps you understand your target audience and competitors. This information is critical for creating a successful business plan. By understanding your target audience, you can tailor your products or services to better meet their needs and preferences. Additionally, understanding your competitors can help you identify gaps in the market and opportunities for differentiation.

Market research can also help you identify potential challenges and risks in your business plan. By understanding the market landscape, you can anticipate potential obstacles and develop contingency plans to mitigate them.

What is a value proposition and why is it important in business planning?

A value proposition is a statement that explains what your business does and what makes it unique. It’s important in business planning because it helps you differentiate your business from competitors and attract customers and investors. A clear and compelling value proposition can help you stand out in a crowded market and communicate the benefits of your products or services.

A strong value proposition should be concise, memorable, and focused on the customer. It should explain how your business solves a problem or meets a need in a way that is better than the competition. By having a clear value proposition, you can communicate your business’s unique selling points and increase your chances of success.

What is a contingency plan and why is it important in business planning?

A contingency plan is a backup strategy that outlines what you will do if unexpected challenges arise. It’s important in business planning because it helps you prepare for potential risks and minimize their impact on your business. A contingency plan can help you stay on track even when things don’t go as planned.

When creating a contingency plan, consider potential risks such as changes in the market, unexpected expenses, or loss of key personnel. Identify strategies to mitigate these risks, such as developing alternative revenue streams or cutting expenses. By having a solid contingency plan in place, you can increase your chances of success and minimize the impact of unexpected challenges.

Top Six Business Plan Mistakes to Avoid

Firstly, make sure to avoid being too optimistic in your financial projections. Secondly, do not underestimate the importance of market research. Finally, do not neglect to consider the potential risks and challenges that your business may face.

By avoiding these common mistakes, you can increase your chances of success and create a solid foundation for your business. Remember to take the time to plan carefully and seek out expert advice when needed. With the right approach, you can achieve your business goals and thrive in today’s competitive market.

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Five Common Strategy Mistakes

• Joan Magretta

I just finished a two-year project looking at Michael Porter’s most important insights for managers. Connecting the dots between his classic frameworks (the five forces, for example) and his latest thinking (the five tests of strategy) gave me a new understanding of the most common mistakes that can derail a company’s strategy. In a previous […]

I just finished a two-year project looking at Michael Porter’s most important insights for managers. Connecting the dots between his classic frameworks ( the five forces , for example) and his latest thinking (the five tests of strategy) gave me a new understanding of the most common mistakes that can derail a company’s strategy. In a previous post, I focused on the fallacy of competing to be the best . Here are five more traps I’ve seen managers fall into over and over again. Understanding Porter’s strategy fundamentals will help you to avoid them.

• JM Joan Magretta is a senior associate at the Institute for Strategy and Competitiveness at Harvard Business School. She is the author of Understanding Michael Porter: The Essential Guide to Competition and Strategy .

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9 Common Mistakes with Business Financial Projections

5 min. read

Updated April 21, 2024

I was glad to be asked about common mistakes with financial projections. I read about 100 business plans a year for angel investment and business plan competitions. Here are the most common mistakes I see in business forecasts.

• 1. Unrealistic profitability

Most of the business plans I see project profits too high, or profits too early. In the real world, startups choose growth or profits, not both. The plans I see are aimed at angel investment. And for that, the investors win on growth, not profitability. Think about it: If a startup is profitable early on, it doesn’t need investors.

• 2. Underestimated market expenses

Many successful tech businesses, especially software and web businesses, spend 30% or more of sales on marketing.

Don’t underestimate development expenses, testing, certifications, and expenses of regulations.

If you are selling physical products, don’t underestimate the impact of selling through channels. Distributors and retailers take their margins and often demand admin and co-promotion expenses. Distributors often pay very slowly, like six months or so after receiving the goods.

• 3. Applying a small percentage to a large market

That doesn’t work. Nobody gets half a percent of a $10 billion market. Instead, sales forecasts should be built on drivers as assumptions. Drivers might be web visits and conversions, emails sent, paid search terms, or, for physical products, channel assumptions such as distributors, chains, stores, and sales per store.

• 4. Large sales growth with a limited headcount increase

If you are going to sell $100 million in the fifth year, get a clue: you won’t do that with only $2 million in employee expenses. Divide your projected sales by your headcount, and compare that to industry benchmarks.

For most industries, $250,000 per employee is really good. If you are getting $2 million per employee, that doesn’t mean you’re going to be that efficient.

It means you don’t understand the business.

• 5. Confusing profit and cash

Having a profit doesn’t mean you’ll have cash in the bank. Good startup financial projections need to include cash flow. Always. For more on that, see points 4, 6,

Businesses selling to businesses (B2B) normally sell on account. A sale generates not money directly but money owed, to be paid later, which goes on the balance sheet as Accounts Receivable, or AR. Every dollar in AR shows up as sales in the P&L but not in cash.

Many plans underestimate the length of the sales cycle and expenses related to selling directly to enterprises.

Many plans underestimate the cash flow affect of inventory. Every dollar in inventory is a dollar that hasn’t yet shown up in the P&L but may have already affected cash balances.

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• 6. Not linking the three statements

Income (also called Profit and loss), Balance, and Cash Flow are interactive. If the model doesn’t reflect a change in one of the three with a related change in the other two, then it’s incorrect. For example, a change in sales should affect not just profits but also balance and cash.

A change in inventory might or might not affect cash—depending on whether it’s been paid or remains in Accounts Payable—but won’t affect profits unless there are related expenses for storage, etc. Interest on debt is an expense that affects Income and Cash Flow but not directly on the Balance.

Repaying principal on debt affects Balance and Cash Flow but not profits. and so forth.

The image above reflects standard accounting and bookkeeping, also called GAAP (generally accepted accounting principles). In the Western world, financial models don’t have the luxury of ignoring GAAP. If they don’t adhere to standards, they aren’t useful and aren’t even correct.

• 7. Assets must always equal liabilities plus capital

This is the force behind point one, the need to link the three statements. The best test of a good financial model is this essential equation: assets less liabilities equals capital. If it doesn’t, then the model is off. Also, the various related equations: capital plus liabilities equals assets. Liabilities equal assets less capital. These must always be true.

So even simple changes flow through the system, and in a good system, those changes properly reflect the essential equations, which are always true. If I keep my three projections separate or have only one or two of the three, then I lose the value of the ultimate error check.

• 8. Underestimating expenses

Very common problem with projected financials. Many vastly underestimate marketing expenses, admin expenses, etc. A founder should have a reasonable idea of general spending patterns in the industry they are in.

I’ve often seen plans projecting 2–5% marketing expenses to sales in web and software industries that spend 30–40% of sales on marketing. I’ve seen plans that show less than $1 million in admin expenses including salaries in a business making 20 million and up in revenues. That doesn’t happen.

The quick key is profits. Real businesses make 5–10% profits on sales and, once in a blue moon, significantly more than that. Growing businesses generally make low profits or none at all because growth and profits don’t normally coexist well. You pick one or the other, not both.

Projections showing high profits almost always vastly underestimate expenses. The projections do not show what a good business it will be but rather that the founders don’t know the business well.

• 9. Overestimating cash

The first problem with overestimating cash is why you would need investment if your business generates such huge amounts of cash. If you generate cash, you don’t need investors.

Furthermore, if you generate cash, investors don’t want you, because you’ll never need to exit. Bottom line: no, you are not going to generate cash during your early growth stages. Growing startups absorb cash. They generate growth with deficit spending, and they need new cash (investment) to finance the deficit.

The other, possibly more important, problem is that these rich cash projections always miss the impact of financing inventory and Accounts Receivable. They don’t understand sales cycles or the difference between making the sale and getting the money.

The errors compound each other. Failing to include realistic expenses leads to unrealistic profits, which then create unrealistic cash in the projections.

The good news here…

… is that for a startup, these problems are way easier to fix than problems with the team, the product, the market, the scalability, the barriers to entry, and the path to exit.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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20 Mistakes to Avoid When Starting a Business

Table of Contents

Starting a business is challenging, but there are many areas you can focus on to help ensure your business stays afloat beyond its first year and continues to succeed. We asked several small business owners and executives to share 20 mistakes new business owners should avoid as they get their companies up and running.

20 mistakes to avoid when starting your business 

According to the U.S. Bureau of Labor Statistics , more than 18% of new businesses fail during their first two years of operation, and more than 55% of all businesses don’t survive past the fifth year. So how do you successfully launch and run your startup? 

We reached out to hundreds of small business owners, growth strategists, financial advisors, legal experts and business consultants to compile the 20 biggest mistakes startups make so you can avoid them when starting your own business .

1. Being afraid to fail

“The biggest mistake you can make is to be afraid of failure. Failure is key to your success, and jumping into your fear is very positive for your future business. How you pick up after failure and learn from your mistakes is the key to great success.” – Audrey Darrow, CEO, Earth Source Organics

2. Not making a business plan

“Too many businesses start without a basic plan, and if you fail to plan, you are essentially planning to fail. A startup should map out a business plan , even if it is just one page. It should include how much it costs to operate, how much they anticipate selling, who would buy their product and why.” – Deacon Hayes, founder, Well Kept Wallet  

3. Being disorganized

“Being organized is key. Running a small business is like being a circus ringmaster. It’s normal to have dozens of things happening at once. So, I have a daily task list, things that I need to do, and I list them by their priority. It sounds simple, but it works and makes me far more productive.” – Tara Langdale-Schmidt, founder, VuVatech  

4. Not defining your market and target audience

“A common startup mistake is not taking the time to understand the market or customers you’re building for. For technical founders, writing code can seem easier than talking to customers, but there’s no way to know if you’re on the right track unless you’re constantly getting feedback from current or prospective customers. It’s important to recognize that building a great product often doesn’t translate into a successful business. Many companies find themselves focusing on a market that’s simply too small to build a big business in.” – George Deglin, co-founder and CEO, OneSignal  

5. Not filing for the proper legal structure

“The biggest mistakes startups make are not registering their business, picking the right business entity or protecting their intellectual property. These three areas are crucial to a business starting right, where, if not done properly, will cost valuable time and money to correct.” – Heather Green Miller, owner, HGM Law Office

6. Trying to do everything yourself

“A big mistake entrepreneurs make is thinking they are all alone, and they try to operate independently without surrounding themselves with wise counsel. Don’t try to run a new business by yourself. Find and onboard trustworthy seasoned advisors to discuss your business ideas, strategy, challenges and progress. Wisdom and power exist in the multiplicity of counsel. Incentivize four people to join your company as advisors in order to receive continuous feedback so that fewer mistakes will occur.” – James Zimbardi, CEO, Rent Items

7. Partnering with the wrong investors

“An important piece of advice that entrepreneurs should know before starting a business is that their investors are more than just financial backers. A company’s first set of investors will make or break it. These individuals place their confidence in the business’s potential without having a proof of concept presented to them. Once businesses have undergone their seed funding, then they’ll interact with investors who look at the business’s growth and sustainability.” – Krish Subramanian, co-founder and CEO, Chargebee  

8. Avoiding contracts

“One of the biggest mistakes a business owner/entrepreneur can make when starting a business is the failure to implement contracts. No matter how good relationships may be, they can come to a screeching halt when systems and agreements are not put in place.” – Michelle Colon-Johnson, founder, 2 Dream Productions  

9. Hiring too soon

“By far, the biggest mistake a startup can make is hiring employees too soon, such as hiring full-timers when a part-timer might make more sense or hiring an employee when a subcontractor could have done the same job/function. It is very easy to run a small business with part-timers, subcontractors and the services of other professionals.” – Joseph C. Kunz Jr., CEO, Dickson Keanaghan  

10. Underestimating capital requirements

“Most entrepreneurs think they can get further with less. In an effort to minimize equity dilution, they forget to factor in unknowns, challenges or delays along the way. Startup leaders tend to plan for the best-case scenario, but that almost never happens. This mentality can be attributed to leaders’ positivity and having drunk their own Kool-Aid. Positivity has its place, however, when it comes to capital; it often results in having to go back to the well for a less-than-ideal raise.” – Wayne Schepens, founder and managing director, LaunchTech Communications  

11. Wasting money

“Handling money incorrectly and being irresponsible with cash flow is a death sentence for startups with limited access to capital. I’ve made the mistake of hiring too many people instead of the right people and spending money to fill the top of the funnel without having a well-defined process to manage the bottom of the funnel. Putting good money to bad use and trying to be everything to everyone instead of being niche-focused is a surefire way to waste valuable time and money, which are the lifeblood to any startup.” – Thomas Aronica, founder and CEO, Biller Genie  

12. Giving yourself the wrong salary

“Paying yourself too little or too much [is a mistake]. It’s often easier to determine the salary for a new hire than determining an owner or partner’s pay. Consider paying yourself a percentage of revenue. Whatever you choose, make figuring out your pay – and that of your partners – a practice and foundation to healthy expectation of management.” – Diana Santaguida, founder, Agency Undone

13. Undervaluing your product or service

“Don’t price too high, but don’t price too low just to gain market share. If you are good, price like it! Many entrepreneurs start with the best of intentions and give things away for free or do free things for charity, community or visibility. Be very careful with this because you don’t want to be known as a source of freebies. Ring the cash register first.” – James Chittenden, founder, OneClickAdvisor  

14. Launching too quickly

“One of the biggest mistakes startups make is launching before they are ready. The saying ‘Done is better than perfect’ is the right advice; however, the ‘done’ needs to ensure it can handle new clients. Once you have launched into the public and you start getting clients, ensure your systems and processes are in place – such as payment terms and process, contracts, communications – whilst still being able to maintain your marketing strategy. The back-end processes need to be watertight before you start taking on clients; if they aren’t, these are the cracks that will show and appear unprofessional.” – Gems Collins, business coach, Gems Collins LLC   

15. Expanding too quickly

“When you start to see success, it can be easy to assume that growth will continue and the best way to make the most out of it is to simply copy and paste your working formula. However, if you … expand your business too rapidly, it could have dire consequences. You may find your period of growth was only temporary and end up stuck with a bunch of new staff but no work and no funds to cover them. That’s why it’s important to take a slow and steady approach to expansion and never act on a spur of good results.” – Mark Webster, co-founder, Authority Hacker

16. Not implementing a proper bookkeeping process

“Many startup founders begin without a bookkeeping process in place. Great bookkeeping habits help you make smarter business decisions, spot opportunities early on, and head off problems before they become unmanageable. Understanding your financials helps to keep a pulse on your business’s financial health. Good bookkeeping practices also ensure you’re on top of issues like tax and insurance payments that can get otherwise great businesses into trouble.” – Paola Garcia, vice president, Pursuit  

17. Not creating a marketing plan

“If you have successfully validated the problem, market and idea for your startup, then you need to have a plan for how you’re going to get your first user, first 10 users, first 100 users and so on. That’s where you need a detailed marketing strategy that encompasses the initial acquisition of users, the conversion of those users into paying customers, and making those customers so happy with your product that they help you get more users (through reviews, word of mouth, referrals, etc.).” – Sam Sheppard, co-founder, Cabana  

18. Hiring the wrong people

“Different skill sets and backgrounds are needed for the different positions you’ll want to fill. When you get started, make sure you have hardworking, all-around generalists who can do everything you need them to [do]. When you begin to grow, look at hiring those who are specialized for the roles that need a specialist. Don’t hire a generalist when you need someone who is specialized, and don’t hire a specialist when you could hire a generalist to do it.” – Devin Miller, founder, Miller IP Law  

19. Overpromising or underlivering

“Don’t overstretch yourself in the pursuit of revenue. It is far better to tell a potential customer that you can take on their project next month, for example, rather than take on too much. Not only will this save you from failing to meet targets due to an increased workload, but it will also make you look like you’re in high demand. And that’s always good.” – Zhen Tang, chief operating officer, AILaw

20. Underestimating the demands of business

“The biggest mistake startups make is underestimating the demands of the business. Documentaries and blogs about startups are making people think optimistically; this is because the information available does not highlight the hardships of starting a business, but it glorifies the end, which is a thriving business. Because of this, people think that a startup is easy and fun, when in reality, it is quite the opposite. Startups take most of your time and money. It can even ruin relationships.” – Esther Meyer, marketing manager, GroomsShop  

Why businesses fail

Companies can fail for a number of reasons. Common causes include not securing enough business financing , assembling an inexperienced management team and not implementing a marketing strategy.

The COVID-19 pandemic has been an additional challenge for new business owners. Safety measures such as face masks, hand sanitizer and plexiglass dividers for staff and customers can get costly. Furthermore, at the start of the pandemic, lockdowns led to lower spending that proved challenging for small business owners. 

A 2020 study published in the journal PNAS found that 43% of small business owners temporarily closed during the early months of the pandemic. Similarly, a 2020 Federal Reserve study reported that roughly 200,000 establishments permanently closed during the first year of the pandemic.

The economic ramifications of the global health crisis are still being felt worldwide. Although certain external factors are out of your control, some matters – like sticking to an accounting checklist – are entirely in your hands.

Starting your business correctly

A successful startup is not built by one person alone, so surround yourself with subject matter experts and mentors you can lean on and learn from. Don’t be afraid of failure; instead, learn from your mistakes and pivot your business model as needed. Test new ideas and acquire feedback so you can tweak your product to better meet customers’ needs.

Although there are several startup mistakes you’ll want to avoid while building your business, occasional mistakes are inevitable. Don’t be too hard on yourself during the process. One of the best things you can do is take what might first seem like bad news, learn from it and put it to good use. With that mentality, business success can be right around the corner.

Shayna Waltower and Adam Uzialko contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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Strategic Planning – 7 Common Mistakes and How to Avoid Them

As consulting CFOs who have led and participated in countless strategic planning sessions over the years, we have experienced first-hand the value that effective strategic planning brings to business. Strategic planning is a vital activity that helps an organization assess the state of its business, market, and resources. It determines priorities, identifies operational gaps, and creates alignment around the key processes that move an organization forward. All these factors are critical to business growth.

Strategic planning establishes markers that will indicate the organization’s progress in getting where it wants to go. Further, it requires a great deal of collaboration and focus to ensure that the right people are involved and that the right information is being used to inform thinking and decisions. Avoiding the seven key mistakes listed below will help your organization get the most out of the strategic planning process.

1. Using an internal facilitator who does not know how to lead a planning session .

To mitigate internal bias and promote objectivity, it often makes sense to bring in a qualified outside consultant to guide the strategic planning sessions. Facilitating is a learned skill that an otherwise talented CEO or management team may not have. Additionally, outside consultants have an external point of view that fosters constructive and candid dialogue from those participating in the process.

2. Setting unclear objectives.

Without clearly stated objectives and a well-defined structure for proceeding, strategic planning sessions wander off-course and can leave participants frustrated and not fully engaged. When everyone understands from the beginning what is expected of them and what the intended outcomes of your strategic planning sessions are, the likelihood of staying engaged and on task to accomplish those objectives is much higher.

3. Failing to establish and maintain an atmosphere of trust and openness.

It is important to openly brainstorm as a group and to have thoughts and ideas contributed by everyone involved in your strategic planning sessions. This only happens when an atmosphere of trust and non-judgment is in place. Sometimes the most left-field idea can generate great change. In environments where people do not feel comfortable or valued for speaking their minds, ideas and inputs that could bring organizational breakthroughs will never be heard.

4. Getting too granular.

The primary purpose of strategic planning sessions is to set major, overarching organizational goals and determine the right strategy for reaching them. Digging into tactics at this point dilutes the strategic impact these sessions should have and can end up driving the process into the weeds. This increases the risk of having too many action items that are never fully completed, rather than narrowing the focus to the strategic few that will be pivotal to success.

5. Not addressing misconceptions about the word “strategy.”

People often don’t have a common reference about what “strategy” is, as it can mean different things to different people. Vision is what you want to be and where you want to go. Strategy encompasses the big steps you take to get there. It’s important at the outset of your strategic planning sessions to ensure that everyone is on the same page.

6. Not following up on ideas that surfaced in your sessions.

Holding a strategic session or series of sessions is hard and important work that, for one, means pulling in leaders from their busy schedules. It’s critical to act on and implement the action items that emerge from the work. Still, the most common failure of strategic planning sessions is a lack of execution. Assign action items to individuals and set up a mechanism for follow-up and accountability. These mechanisms often take the form of quarterly updates, interim progress reports, and individual follow-ups.

7. Not having the right participants or key functions represented.

There are generally two perspectives on this point – one that believes strategic planning sessions should be a small group, because it’s easier to get things done, and another which holds that a larger group has a greater chance of generating more good ideas and making buy-in easier. As the group gets bigger, the facilitator’s role becomes commensurately more important. No matter your perspective, it is important to include people from different disciplines, including sales, finance, operations, marketing, and other groups to optimize input.

While getting all key players in the same room for a strategic planning session can feel like a big accomplishment in itself, the success of this work rests on the ability to harness participants’ skill sets, ideas and unique perspectives to collectively achieve the stated objectives. It’s tough to overstate the importance of these sessions, as they will greatly impact your organization’s trajectory. For that reason, it’s essential to incorporate the proper framework, facilitation, and attendees into the process. Avoiding the seven common mistakes outlined here will put you and your team on a path for success.

Originally published January 21, 2018. Updated and republished October, 24, 2019.

Carter Freeman is the Managing Director and Consulting CFO for the Denver office. You can reach him at [email protected] .

Have more questions about strategic planning or need an experienced facilitator to lead your next strategic planning session? Request a free consultation from a vcfo expert who can help. 

Carter Freeman

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Classic Mistakes Business Owners Make When Planning Growth

Expanding a business is an exciting prospect, but without careful planning and foresight, the path to growth can be fraught with pitfalls. In the dynamic business landscape of the UK, understanding these common mistakes can help entrepreneurs navigate their growth strategies more effectively. Here’s what you need to know to avoid these classic errors.

Mistake: Failing To Set Clear Growth Objectives

One of the foundational mistakes many business owners make is not having a clear, actionable plan for growth. Setting vague or unrealistic goals can lead to misdirected efforts and resources, hampering your business’s expansion.

Establish SMART Goals

Ensure your growth objectives are Specific, Measurable, Achievable, Relevant, and Time-bound ( SMART ). This approach provides a clear roadmap for your team and helps measure progress against specific milestones.

Mistake: Underestimating Financial Requirements

Expanding a business often requires a significant financial investment. Underestimating the capital needed for growth initiatives can lead to cash flow problems, stalling your expansion plans and putting the business at risk.

Secure Adequate Funding

Carefully calculate the costs associated with your growth strategy, including new hires, marketing, equipment, and potential expansion of premises. Consider various funding options, such as business loans, investors, or crowdfunding, to ensure you have the financial backing needed to support your growth.

Mistake: Overlooking The Importance Of Market Research

In the excitement of expansion, it’s easy to overlook the importance of thorough market research. Failing to understand the current market dynamics, customer needs, and competitive landscape can lead to misguided growth strategies.

Conduct Comprehensive Research

Invest time in conducting detailed market research to inform your growth plans. Understand your target customer segments, identify emerging trends, and assess the competitive environment. This knowledge will enable you to tailor your growth strategies to meet market demands effectively.

Mistake: Not Using Visuals To Pitch To Investors

When seeking investment for growth, the way you present your business and its potential can make all the difference. A common mistake is relying solely on text-heavy documents and spreadsheets, which can fail to capture the imagination of investors.

Leverage Visual Storytelling

Incorporate visuals such as charts, graphs, and infographics in your pitches to convey complex information in an easily digestible format. Consider using digital flipbooks to make a more dynamic and engaging case for your growth plans. Digital flipbooks are the online equivalent of a magazine or brochure, but you can also add links and videos!

Mistake: Neglecting Existing Customers

While pursuing new markets and customer segments is a natural part of growth, neglecting your existing customer base can be detrimental. Sustained growth is often built on a foundation of loyal customers who advocate for your brand.

Maintain High Levels Of Customer Service

As you plan for expansion, ensure that customer service remains a top priority. Continue to engage with your existing customers through personalised communications, loyalty programs, and feedback mechanisms to keep them satisfied and loyal.

Mistake: Overextending The Business

Rapid expansion can sometimes lead to overextension, where the business takes on more than it can effectively manage. This can strain resources, dilute brand identity, and impact product or service quality.

Pace Your Growth

Adopt a measured approach to growth, expanding in stages that align with your business’s capacity to manage new challenges effectively. This cautious strategy helps maintain quality and service levels, ensuring that growth is sustainable over the long term.

Mistake: Ignoring Company Culture

As businesses grow, maintaining the company culture that contributed to their initial success can become challenging. However, ignoring the impact of growth on company culture can lead to disengagement and turnover among employees.

Foster A Strong Culture

Actively work to preserve and adapt your company culture as you grow. Communicate openly with employees about changes, involve them in the growth process, and continue to reinforce the core values and mission of the business.

Mistake: Disregarding Employee Input and Well-being

As businesses expand, the workload and operational complexities increase, potentially impacting employee morale and productivity. Ignoring the well-being of your team and not seeking their input on growth strategies can lead to disengagement and high turnover rates from quiet quitting . This is, of course, detrimental to sustained growth.

Prioritise Employee Engagement

Implement regular check-ins and feedback sessions with your team to gauge their well-being and gather their insights on improving operations and customer service. Offering support through training opportunities, wellness programs, and flexible work arrangements can maintain high levels of morale and engagement, crucial for navigating periods of growth.

Mistake: Lacking Flexibility In Strategy

While having a clear growth plan is essential, being overly rigid and not adapting to market changes or feedback can stall or even reverse growth. The business environment, especially in dynamic sectors, can evolve rapidly, requiring businesses to be agile and responsive.

Adopt An Adaptive Approach

Build flexibility into your growth strategy by setting regular review points to assess progress and adapt plans as necessary. Being open to pivoting your approach or strategy in response to new information, customer feedback, or changes in the market can ensure your business remains competitive and on track for growth.

Mistake: Not Investing In Technology

Tech plays a pivotal role in scaling operations, improving efficiency, and enhancing customer experiences. Failing to invest in the right technology can hinder a business’s ability to grow effectively, limiting capabilities and competitive edge.

Leverage Technology For Growth

Evaluate and invest in technology solutions that streamline your operations, improve data analysis, and enhance customer engagement. Whether it’s adopting a robust CRM system, utilising cloud computing for flexibility, or implementing e-commerce platforms for online sales, the right technology investments can drive significant growth and operational efficiencies.

Mistake: Neglecting Competitive Analysis

In the rush to expand, businesses sometimes overlook the importance of a detailed competitive analysis. Understanding your competitors’ strengths, weaknesses, strategies, and customer feedback is crucial for identifying your true competitive edge and areas for improvement.

Conduct Regular Competitor Reviews

Stay informed about your competitors’ activities through regular reviews. Use tools and resources available for market analysis to track their offerings, pricing, marketing strategies, and customer reviews. This information can inform your growth strategies, helping you to innovate and stay ahead.

Mistake: Failing To Scale Customer Support

As your customer base grows, so does the demand for effective customer support. Not scaling your customer service capabilities can lead to dissatisfaction, negative reviews, and loss of business. Ensuring your support systems grow with your customer base is critical for maintaining a positive brand reputation.

Invest In Scalable Support Solutions

Consider implementing scalable customer support solutions such as automated help desks, chatbots, and comprehensive FAQs on your website. Additionally, training additional staff or using outsourced support services during peak times can help maintain high service standards.

Mistake: Overlooking Data Security And Compliance

Growth often involves collecting and managing increasing amounts of customer data. Failing to adequately protect this data and ensure compliance with data protection regulations can lead to serious legal and reputational consequences.

Strengthen Data Protection Measures

Invest in robust cybersecurity measures to protect your business and customer data. Ensure compliance with regulations such as the GDPR by regularly reviewing and updating your data protection policies and practices. Training your team on data security best practices is also crucial for preventing breaches.

Wrapping It Up

Planning for business growth requires a strategic, informed approach to avoid common pitfalls. By setting clear objectives, understanding financial needs, conducting thorough market research, using visuals to engage investors, maintaining customer satisfaction, managing the pace of expansion, and preserving company culture, you can steer your business towards successful growth. Remember, sustainable expansion is a marathon, not a sprint, requiring patience, resilience, and a keen understanding of your business and its market.

Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.

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Business | Selling an asset? Don’t forget to plan before…

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Business | selling an asset don’t forget to plan before you sign.

What if you found out, after the sale, that instead of only a small amount or no taxes being owed, your tax bill was close to 50% of the profit? Because you did not consider tax planning before selling the asset, the proceeds you planned to spend on a new car, kitchen remodel, or vacation must now be paid immediately to the government instead.

Here are some cautionary examples of when assets were sold without planning for taxes and how to avoid these mistakes.

Outdated or incorrect advice

As a simple example, you have heard how capital gains tax rates are lower than ordinary tax rates, which is true. Long-term federal capital gains are taxed at 0-20%. However, to qualify for those lower rates, you must hold the asset for over a year. Otherwise, the sale is taxed as a short-term capital gain at 10-37% ordinary tax rates. Add in state taxes, and your tax rate can approach 50% if you did not hold the asset for more than a year.

Many other holding periods and restrictions can be found throughout the IRS Code. For example, if you want to take advantage of the exclusion available when you sell your residence, according to the IRS, you must have owned the home and used it as your residence for at least 24 months of the previous 5 years unless certain exceptions are met.

Since your primary residence is generally the largest asset you will sell in your lifetime, here is another common tax planning mistake. Even though it has not been true for some time, many still believe you will pay no tax if you trade up to a more expensive home. Also, the excluded amount on home sales is only $250,000. It is only $500,000 if your filing status is married filing jointly.

The cost of not qualifying for the $500,000 exclusion could result in an additional $100k in federal taxes.

Not documenting losses and costs

A married couple, both medical doctors, neglected to report their many rental property activities on their tax returns because their preparer said their high income prohibited them from writing off the passive losses they incurred. Therefore, they assumed there was no reason to include the income and expenses on their returns.

When they disposed of the properties, those passive losses they did not report could have been written off against the sale proceeds. Not keeping track of and reporting those accumulated losses resulted in the couple paying several hundreds of thousands of dollars in taxes they should not have owed.

Another mistake is that some do not report capital losses, generally on stock sales, because they believe the losses are limited to $3,000. While it is true that the losses are limited, any losses in excess of $3,000 can be carried forward on your individual return to offset future gains.

The same is true for charitable contributions and some forms of accelerated depreciation. You can carry those excess deductions forward to future years.

If someone says, “Don’t bother” to keep track of losses or expenses, seek another opinion. For instance, those capital improvement expenditures for your home can be used when you sell. In many cases, the documented improvements over the years, like roofs, patios, and pools,  can eliminate the gains on the sales of homes. Keep those receipts and use them later!

The danger of corporations

While the use of entities like LLCs and corporations can often offer asset protection, tax, and estate planning benefits, there are many tax ramifications when you eventually sell assets that are no longer owned by you personally.

For example, we often advise clients not to hold appreciable assets in their closely held corporations. Why? When you sell an asset held by a corporation but want to use the sale proceeds personally, the taxes will often be much higher than if the asset was held in your name or an LLC. Since the asset belongs to a corporation and not you,  you must somehow transfer that asset or the profit from the asset’s sale from the corporation to you as a shareholder.

One client put all her properties in several C-Corporations just before death and left it for her kids to figure out what to do. They would have paid no taxes had she not put the real estate in the corporation. The trustee also had to file unnecessary corporate returns and close the corporations.

Unfortunately, new business owners often elect to be an S-corporation without considering what will happen when they sell the business. (I also think clients assume that since the S stands for small and they are a small business, they figure they must be an S-Corporation. This is not the case.)

If, instead of electing to be an S-Corporation, they chose to operate as a C-corporation, with some other qualifying factors, they could pay little or no tax when the business sells five or more years in the future. One business owner could have saved $300k in federal and state taxes on selling $1 mil in stock. For more information, read about Sec. 1202 small business stock here- https://www.sba.gov/blog/qualified-small-business-stock-what-it-how-use-it.

Instead of using an online or do-it-yourself incorporation service, work with a qualified attorney and knowledgeable accountant and ask questions to avoid making costly planning mistakes.

A renowned tax attorney and educator of other attorneys with fifty years of experience offers profound insight: “Paying an income tax is a reflection that something good has happened, not something bad. As a result, the fact a tax related event has occurred is, almost always, a reason to celebrate.”

Just make sure to do some tax planning before the sale; then, the tax savings will be an additional reason to celebrate.

Michelle C. Herting is a CPA, an accredited business valuator, and an accredited estate planner. She specializes in succession planning, business valuations, and settling trusts.

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Whistleblower questions delays and mistakes in way epa used sensor plane after fiery ohio derailment.

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Copyright 2024 The Associated Press. All rights reserved

Whistleblower Robert Kroutil poses for a photo Monday, May 13, 2024, in Olathe, Kan. Kroutil, who worked supporting an EPA program to collect aerial data, is questioning the agency's efforts to collect data with a specialized airplane after a 2023 train derailment in East Palestine, Ohio. (AP Photo/Charlie Riedel)

The U.S. government has a specialized plane loaded with advanced sensors that officials brag is always ready to deploy within an hour of any kind of chemical disaster. But the plane didn’t fly over eastern Ohio until four days after the disastrous Norfolk Southern derailment there last year.

A whistleblower told The Associated Press that the Environmental Protection Agency's ASPECT plane could have provided crucial data about the chemicals spewing into the air around East Palestine as the wreckage burned and forced people from their homes.

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The man who wrote the software and helped interpret the data from the advanced radiological and infrared sensors on the plane said it also could have helped officials realize it wasn't necessary to blow open five tank cars and burn the vinyl chloride inside because the plane's sensors could have detected the cars' temperatures more accurately than the responders on the ground who were having trouble safely getting close enough to check.

But the single-engine Cessna cargo plane didn't fly over the train crash until a day after the controversial vent-and-burn action created a huge plume of black smoke over the entire area near the Ohio-Pennsylvania border.

Robert Kroutil said even when the plane did fly, it only gathered incomplete data. Then, when officials later realized some of the shortcomings of the mission, they asked the company Kroutil worked for, Kalman & Company, to draft plans for the flight and backdate them so they would look good if they turned up in a public records request, Kroutil said.

Kroutil said his team labeled the mission inconclusive because only eight minutes of data was recorded in the two flights and the plane's chemical sensors were turned off over the creeks. But he said EPA managers changed their report to declare the vent-and-burn successful because the plane found so few chemicals when it eventually did fly.

“We could tell the data provided from the ASPECT plane’s two East Palestine flights on February 7 was incomplete and irregular. We had no confidence in the data. We could not trust it,” Kroutil said.

The revelations about the use of the ASPECT plane in the aftermath of the worst rail disaster in a decade raise new questions about the effectiveness of the “whole-of-government response” in East Palestine the Biden administration touts.

The Government Accountability Project that represents Kroutil and has been critical of EPA's response in East Palestine sent a sworn affidavit detailing his concerns to the EPA inspector general Tuesday and requested a formal investigation. The group provided a copy of the affidavit and Kroutil agreed to an interview with the AP ahead of time.

Ohio U.S. Sen. Sherrod Brown, who has tried unsuccessfully to pass rail safety reforms ever since the derailment, said the agency should take these concerns seriously.

“These are disturbing allegations and EPA must thoroughly investigate this incident," Brown said. "EPA needs to immediately release more details surrounding this incident – they at least owe that to the people in East Palestine.”

In a statement Tuesday, the EPA said it didn't even request the plane until Feb. 5 — two days after the derailment — and it arrived in Pittsburgh late that day from its base in Texas. Due to icing conditions, the flight crew decided it wasn't safe to fly it on the day of the vent-and-burn, but it's unclear why the plane didn't make a pass over the derailment on its way into the area. EPA Response Coordinator Mark Durno has also said he believes the agency had enough sensors on the ground to effectively monitor the air and water as the derailed cars burned.

The agency said its “air monitoring readings were below detection levels for most contaminants, except for particulate matter” in the first two days after the derailment and “air monitoring did not detect chemical contaminants at levels of concern in the hours following the controlled burn.” Officials say data gleaned from more than 115 million readings since then doesn't show any “sustained chemicals of concern” in the air.

But many residents of the town who still complain of respiratory problems and unexplained rashes while worrying about the possibility of developing cancer have doubts about the EPA's assurances that their town and the creeks that run through it are safe. More than 177,000 tons of soil and over 67 million gallons of wastewater have been hauled away as part of the ongoing cleanup that's cost the railroad more than $1 billion.

The head of the NTSB has said her agency's investigation determined the vent-and-burn wasn't necessary because the tank cars were actually starting to cool off, confirming that a dangerous reaction wasn’t happening inside them — something the chemical company had tried to tell officials. But the people who made the decision to blow open those tank cars said they were never told what OxyVinyls' experts determined. Instead, they heard only about the fears the tank cars might explode.

The EPA said the ASPECT plane's flights in East Palestine were consistent with past missions and the plane gathered the requested information, but that doesn't match Kroutil's experience.

“The East Palestine derailment was the oddest response I ever observed with the ASPECT program in over two decades with the program,” said Kroutil, who helped develop the program when he worked for the Defense Department after the 9/11 attacks demonstrated the need for such airborne monitoring over New York.

Kroutil said he retired in frustration in January and wants to share his concerns about the East Palestine mission. He said this incident was handled differently than the 180 other times the plane has been deployed since 2001.

“You want to fly over a train derailment in the first five to 10 hours after the incident and while the fires are still burning. It is really advantageous if you have a plume. That big black plume ... is when you want to get in and collect data," Kroutil said. "The EPA ASPECT airplane should have made passes over the derailment site right away but certainly before the vent-and-burn. I think they chose not to know.”

Kroutil’s former boss, Rick Turville, is the program manager for the ASPECT plane data interpretation at Kalman. He said he trusts Kroutil completely because he is one of the world’s preeminent experts in spectroscopy and he shares Kroutil's frustration about the plane not flying sooner.

“These kind of fires or refinery fires, fertilizer plant explosions, they don’t happen often,” Turville said. “But when they do, you got to be there and you got to be there quick. And that’s how you save lives.”

Fortunately, no one died in East Palestine but thousands of lives were upended after the derailment and the worries about future health problems won’t go away.

The EPA manager in charge of the program, Paige Delgado, didn’t immediately respond to an email sent to her Monday with questions about her actions.

Kroutil said he heard Delgado order the plane’s operator during the mission to shut down the chemical sensors when it flew over the creeks in East Palestine even though officials were concerned about chemicals reaching those waterways, potentially fouling drinking water supplies downstream on the Ohio River. Kroutil said his satellite link to the plane’s instruments confirmed those sensors were turned off.

The EPA’s official report on the two East Palestine flights describes pictures the plane took over Little Beaver Creek after a problem with its aerial camera was fixed, but it doesn’t mention Sulphur Run that flows right next to the derailment site or the bigger Leslie Run creek that flows through town.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

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Business | South Florida businesses play waiting game with…

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Business | South Florida businesses play waiting game with new FTC ban on ‘noncompete’ agreements

“We had thousands of agents,” he said, “and when I was younger I used to go to sleep and hope the next day they all showed up.”

Pappas spoke this past week in the context of a new federal ban on employee noncompete agreements imposed by the Federal Trade Commission, which says it acted to foster more job mobility among employees nationwide.

“We have employees that are management and in leadership that probably would be affected by that,” Pappas said in an interview with the South Florida Sun Sentinel. “But the independent contractors — we could never stop them and [the agreements] were never enforceable before.”

“We’ve got people who have been with us 20, 40, 50 years,” Pappas said. “We’ve got a lifetime of individuals.”

But what if someone wants to leave?

That’s what the FTC asserts it wants to make easier for workers with the rule that bars companies from restricting where an outbound employee may work when perceived greener pastures beckon.

What the rule would do

In a statement, the commission asserted its rule would:

• Negate existing noncompetes “for the vast majority of workers” as their agreements  “will no longer be enforceable after the rule’s effective date.”
• Preserve existing noncompetes for senior executives who make more than $151,164.
• Ban employers from entering into or attempting to enforce new agreements, “even if they involve senior executives.”
• Require employers “to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.”

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan in a  statement. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The commission asserted the rule would “generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation.”

It also predicted worker earnings would rise by $524 per year, and their health care costs would decline by up to $194 billion over the next decade. The rule would also generate an average increase of 17,000 to 29,000 more patents each year over the next 10 years, the agency contended.

“Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation,” the commission said. “An estimated 30 million workers — nearly one in five Americans — are subject to a noncompete.”

“The commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers,” the agency added, while “inhibiting new business formation.”

The agency said that businesses worried about losing trade secrets can rely on nondisclosure agreements “to protect proprietary and other sensitive information.”

The final rule will become effective 120 days after it is published in the Federal Register.

Delayed by lawsuit?

But several labor and employment lawyers interviewed by the South Florida Sun Sentinel noted it likely will be more than four months before the rule takes effect — if the courts uphold it.

“My experience has been that when something comes out there is an immediate challenge, and historically there is a stay,” said Michael Gore of the Jones Foster law firm in West Palm Beach.

Sure enough, the U.S. Chamber of Commerce and several other business groups in Texas fileed suit in a Texas federal court to block the action.

The suit alleges the FTC lacks the authority to implement such a rule, which the groups believe is too broad.

“The sheer economic and political significance of a nationwide noncompete ban demonstrates that this is a question for Congress to decide, rather than an agency,” the U.S. Chamber, which represents roughly 3 million companies, said in the lawsuit filed in the Eastern District of Texas.

Getting prepared

In the meantime, legal advisers say companies should be reviewing their existing employee agreements to determine which ones may need to end under the rule and which ones can survive.

Roger Feicht, an employment lawyer at the Gunster law firm in West Palm Beach, said he and his colleagues met last week to assess what they should be telling their clients.

“The first piece of advice I’m sharing is to wait and see and closely follow the lawsuit that has been filed in Texas,” he said. “That process has been used to challenge other federal agency actions in the past. The question will be whether there is a temporary restraining order or permanent injunction preventing them from enforcing the rule.”

In the meantime, he added, “now is the time to catalog and take note of the existing agreements and whether any of them would survive so the business is well prepared to comply with the final rule.”

Florida law is friendly toward noncompetes and is likely to be impacted. California and several other states ban them, while some allow the agreements under more narrow circumstances than Florida.

“This rule impacts Florida in particular just because we have a state law that has recognized the right of businesses to use them for years,” Feicht said.

Diane Perez, a labor and employment lawyer in Coral Gables, said she has received calls from employees inquiring about the enforceability of their noncompete agreements.

“Employers should not be rescinding noncompetes,” she said. And employees should not be heading for the exits.

“Everyone needs to remain calm and let’s see what happens in the courts,” Perez said, adding that the litigation could well head for the U.S. Supreme Court.

Gore said it’s important “to make sure your agreements comport with Florida law as well.”

Florida law “strikes a balance” between allowing an employer to protect their assets versus an employees’ “inalienable right” to work in Florida.

“To enforce a noncompete, an employer has to prove it is protecting a valuable asset,” Gore said.

Andrew Zelman of Berger Singerman in Fort Lauderdale said employers should make lists of employees with noncompete agreements and be prepared to distribute notifications that the rule applies to them.

“As of the date [the rule] is enforceable, all employers must provide notice to those employees,” he said, via text, email or regular mail.

“Monitor when the [rule] actually hits the Federal Register and see what happens with the Texas case,” he added.

“There are protections that do not appear to be disturbed by this act,” Zelman said.  “We’re not in purgatory here. There is a senior executive exemption.”

Fight for talent

The organized labor giant AFL-CIO hailed the ruling as a move that will cut restraints against worker movement from one job to another.

“Noncompete agreements trap workers from finding better jobs, drive down wages, and stifle competition,” the organization said in a social media post. “We commend the @FTC and @linakhanFTC for finalizing a strong rule to ban these exploitative practices and level the playing field for American workers.”

In South Florida, a region with unemployment rates below the national level and rising employer demand for talent, the end of noncompetes could enhance worker movement.

”The concerns about the lack of talent are going to dissipate slightly with this ban if it’s not enjoined by the court,” said Rick Arce, an attorney with Perlman Bajandas Yevoli & Albright in Coral Gables.

“It would allow the free flow of employees without moving outside the geographical constraints imposed by a noncompete.”

Zelman agreed that options would “open up for employees as they can go and ply their trade somewhere else.”

But he added that noncompetes have value.

“You’re going to be paid more money if you agree to a noncompete,” he said. “There is value there, and that value is going to go away.”

Protections remain

Companies  can still safeguard their secrets and other proprietary information through nondisclosure and nonsolicitation agreements. The latter prevents departing employees from soliciting a former employer’s customers, employees, or ideas for personal gain or for the gain of the new employer.

“There is still protection,” Arce noted, as the FTC did not include those agreements in its ban against noncompetes.

Perez agreed.

“If the rule goes into effect, then technology companies opening here will still have some level of protection with regard to intellectual property,” she said.

Nondisclosures: A better option?

Mark Goldstein, a New York-based lawyer with the firm Reed Smith, said it’s more important “that employers have clear agreements in place” such as nondisclosure pacts that bar employees from disseminating proprietary information to rival employers.

One area where noncompetes do not appear to be an issue in South Florida is among startup companies operated by entrepreneurs who are flocking to the region.

“Throughout the year I haven’t heard noncompetes to be a concern either way, whether they should have them or not have them,” said Andrew S. Duffell, president of the Research Park at Florida Atlantic University in Boca Raton.  The park is home to the FAU Tech Runway as well as Global Ventures, a group of more advanced enterprises.

“From an “eco-system perspective, it’s not a bad thing that people move from firm to firm and take innovative practices and ideas to make firms in general more efficient  so long as they are not divulging protected property,” Duffell said. “The diffusion of ideas in general is good for business, making them more competitive.”

But there has been more of a reliance on nondisclosure agreements for people on the move.

“That seems to be the preferred route people have gone,” he said.

Saying good-bye

In the end, achieving good will through mutual agreements are the best way to manage departures, executives say.

“If there’s a break you don’t want to do harm,” said Pappas, of The Keyes Co. “You need to find a way to exit and work it out positively. Nobody wins in a  fight.”

Goldstein of Reed Smith predicted some employers might arrange “garden leaves” for outgoing employees. They essentially protect businesses from workers sharing confidential information such as client lists or trade secrets, while the employee gets some financial stability while transitioning to another firm.

“For a period of time, three or six months after the employment ends, you stay on and not do anything,” Goldstein said of the practice that is designed to allow for an employee’s smooth transition out of a company. Under the arrangement, the employees literally “sit home” and collect their salaries.

“It doesn’t trigger the noncompete clause,” he said.

This article has been updated to reflect where the firm Reed Smith is based.

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8 common mistakes businesses make before or during lawsuits.

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John B. Quinn is the founder of Quinn Emanuel Urquhart & Sullivan LLP, the world's largest law firm devoted solely to business litigation.

Companies never know when they might be pulled into legal proceedings. When they are, they often find that careless mistakes made along the way can be exploited by adversaries and make bad situations worse. In the 40-plus years I have been a business trial lawyer, I have dealt with unforced errors countless times, from both our adversaries and our clients, that undermine a company’s legal position.

These are some common things litigants do that hurt their positions before or after disputes arise—and how to avoid them:

Communications

Always assume that anything in writing—including emails, texts, instant messages, PowerPoints and hand-written notes—will be discovered and used by your adversary in litigation. Even with informal communication channels, such as Slack, WeChat, WhatsApp and Signal, poorly phrased communications rarely disappear and can be used (sometimes out of context) by adversaries.

Take, for example, an antitrust hearing where Mark Zuckerberg was forced to admit that Facebook copied competitors’ features because of emails from employees saying “Let’s ‘copy’ (aka super-set) Pinterest!” In a lawsuit against Uber, Waymo framed Uber’s former CEO as a rule-breaker wanting to “win at all costs,” bolstered by internal Uber notes that he wanted a “pound of flesh” from a business acquisition. In a lawsuit alleging that Deutsche Bank sold securities using misleading offering materials, the bank settled after internal emails revealed warnings calling the securities “generally horrible” and “crap.”

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Other examples of phrases that can send up red flags include: “please delete after reading,” “wipe,” “clear,” “delete,” “scrub,” “let’s take this offline” or “it would be best to talk by phone.” Remember, anything you write can and will be used against you.

Document Destruction

Company records are not like a messy house. You cannot “clean up” before company arrives. Parties are legally obligated to preserve evidence once a dispute arises or can reasonably be anticipated.

Attempts to “clean up” the record—including altering websites, deleting chats or social media posts or changing phones—are ill-advised and can worsen the situation. There will also likely be a record of all deletions that opposing counsel can exploit. When evidence is spoiled, judges can—and often do—instruct juries to “assume the destroyed evidence would have been damaging,” impose heavy fines or award entire cases to the adversary.

Employers should consider the risks of taking adverse actions, including layoffs, demotions or terminations, against potential witnesses. When an employer fires a key witness, the witness may become unavailable for trial or turn hostile.

Once a dispute arises, consider halting all interactions with the adversary except through counsel. Some of the worst emails or texts are often sent after the dispute begins but before litigation commences. Ideally, there should be no external communication about the dispute outside of a small group of attorneys or individuals advised closely by attorneys.

Attorney-Client Privilege

The attorney-client privilege shields candid communications between attorneys and clients from discovery. But the privilege can be waived or lost by mistake.

Companies jeopardize the privilege when in-house counsel serve dual roles as lawyers and businesspeople. In-house counsel may not claim the privilege for communications made in their business role or it may protect only portions of their communications or documents. The privilege can also be waived if protected communications are disclosed to third parties, so always label privileged communications and limit access to a few necessary people.

Some employees mistakenly believe that merely copying an attorney on a communication makes it privileged. But to be protected, each communication must be closely connected to seeking legal advice.

The privilege can also be under-used. For example, the privilege can protect an internal investigation. However, companies frequently turn to non-lawyers for investigations. If lawyers are not involved, the investigation will not be privileged, and the results may be used against the company.

Managing Lawyers

Lying to your lawyer is like lying to your doctor. Just as planned surgeries have better outcomes than emergency surgeries, legal strategies formed after carefully considering bad facts and good have better results than those formed hurriedly when bad facts surface.

Another mistake is focusing too much on lowering costs, including attorney rates, instead of the overall cost picture. You can lose lawsuits for nothing, but that will not minimize overall costs to the company.

Contacting your insurer immediately after your company receives notice of a lawsuit, subpoena, administrative action or demand letter can be the difference between you paying money versus the insurer. Late notice to an insurer can result in denial of coverage.

You must also keep your insurer informed about developments in litigation. Policyholders should obtain insurer consent to retain counsel, keep the insurer apprised of settlement negotiations and always obtain insurer’s consent before finalizing any resolution.

Corporate Governance

Litigants frequently sue parent companies for the actions of subsidiaries. Ignoring corporate formalities—such as commingling funds—can breathe life into such claims. Not documenting corporate actions also increases risks. When corporate decisions are challenged, courts expect that all corporate formalities were followed and the decision-making process was recorded.

Choice Of Law And Dispute Resolution Provisions

Where disputes are decided, by whom and on what terms are all crucial in litigation. The difference between discovery in litigation and arbitration can be millions of documents and years of time. In terms of publicity, the difference can be an article in the Wall Street Journal and complete secrecy.

Differences in law between jurisdictions can also impact litigants’ rights. Claims that have expired under the statute of limitations of one state might still survive in another.

Choice of law and dispute resolution provisions allow parties to address these issues in advance. Understanding these provisions before signing any agreement can prevent unpleasant surprises down the line.

Final Considerations

Perhaps most importantly, companies should seriously consider at the outset whether litigation will solve their problems. Once lawsuits are filed, they can be difficult to end. Litigating “out of principle” rarely makes sense; companies often do better focusing on winning in the marketplace than in court.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

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