Beware the Sample Business Plan Trap

Filed in archive Writing a Business Plan on November 17, 2006

Making changes to a sample plan by changing the names and numbers is always a bad idea because they can get you into more trouble than not having one at all. How?

Directors Liability

If you are incorporated or plan to incorporate you will want to learn about your directors liabilities. Typically the president and treasurer are considered the directors of a company. A vice-president also can be a director if specified by your corporate bylaws.

Directors have a fiduciary responsibility to act in the corporations' best interest. These obligations are seen as important as those between a trustee and a beneficiary. For example, the Princeton WordNet defines a fudiciary as a person who holds assets in trust for a beneficiary; "it is illegal for a fiduciary to misappropriate money for personal gain".

A director's position is a very serious matter - I know of a client in Canada that went to jail based on this concept. Even though his manager embezzled the money and disappeared - the court held that he and his partner as directors of the company were responsible for ensuring that the manager was managing the affairs of the company correctly. Their defense of trusting the manager and dealing in good faith did not hold up - they spent 18 months in jail.

Another example of a breach of ones fiduciary duties as a business owner would be to pay yourself before paying suppliers or the IRS.

Sample Business Plans Are too General

Just like a generic legal agreement that lacks specifics using a business plan template or sample plan without checking it's details cannot adequately identify risks, liabilities and runs the risk of getting the business and directors in trouble.

The problem arises because unless something is spelled out, disclosed or excluded it will be considered to have been included due to the general and broad terms of the business plan.

For example, a general statement in a business plan that assumes that does not disclose a tendency of the business to seasonal revenue fluctuations could be considered an oversight or even fraud if the sample plan projected steady growth in sales.

This can become an issue especially if you plan to finance your business using private investors. If the business were to get into trouble and go out of business and you failed to disclose (for whatever reason) the cyclical or seasonal nature of sales - you could find yourself being sued.

Do Not Be Afraid of Details

You are always much safer with more detail than less. You are less likely to miss an important assumption and after all the whole point of planning is to reduce risk. Sample plans can only increase your risk unless you only use them as a writing tool and not a planning tool.