Before you start to write a business plan please take a moment to examine your intentions and reasons for wanting to write a business plan.

The reason you want to read this article is because I am going to reveal the traps you may be opening yourself up to and some tips on making sure you get the most from your investment of time and energy.

Top 10 Tips and Traps When Writing a Business Plan (no particular order)

• Free Money: so you have heard about small business grants and perhaps even bought a 'grants book'. As for free money to start a business - I have not found any legitimate sources in the U.S. there are a few government grant programs in Canada. Back on June 14, 2005 I issued a 'Grant Challenge' and so far no one that reads my blog (10,000+ month) have commented or reported business grants. There is no free money for someone wanting to start a business! There are loan programs but no free money programs. I have spoken to many people who have called me asking for help with this task and they all needed the 'free money' because they had none - that is a good reason to stop and do not bother to write a business plan. If you have no money you can invest and do not have a positive 'net worth' get a job, do not try to start a business. It takes money to make money. The only exception to this would be if you are starting a services business and even then most service businesses need $3,000-$5,000 to get started.


• Get a grant: so if you are looking for a grant to start a business and did not read the 'Free Money' tip above, please read it and then come back. I do not have direct experience and can only share with you the experiences I have had with people calling me and ask me for help getting a grant to start a business. All of the people who call me looking for grant money to start a business have attended an expensive seminar, purchased an expensive 'grant guide' or hired a firm to write a 'grant proposal' to help them get free money. I can tell you that none of the people I spoke with have been successful finding money this way. Many have actually spent hundreds of dollars buying services of a grant writer, mailing list, seminar or book. The people promoting small business grant programs are making money from unsuspecting albeit ignorant public - but no one I have spoke to have actually got a dime to start a business using this tactic. Please do not call me asking for my help unless you actually have received free money and can prove your claim.


• Business Loan to Start a Business: starting a business is a legitimate reason to write a business plan. If you take the process of writing a business plan to start a business seriously and do not short shrift the process you will be rewarded with in-depth knowledge of your business, reasonably accurate financial projections, and substantially increase your odds of succeeding. Generally, financial institutions (including SBA loans for a business start up will require you to invest 25% of your own capital or have equity you can use as collateral to get the start up capital.


• Get a Loan to grow my Existing Business: if you already have an existing business and have done some financing already with your bank and are looking for additional funds to expand your business or consolidate debt you already likely have a business plan. In limited cases some banks and financial institutions accept a 'loan proposal' in lieu of a full business plan. When a loan is completed in this manner it is usually due to a strong banking relationship, very successful business, or a well qualified business owner (high net worth with perfect credit). If you are one of these people and you are reading this tip - call your banker and ask them if they will accept a 'loan proposal' with past financial statements in lieu of a full business plan. You might be pleasantly surprised and save yourself a lot of time, effort, and energy.


• Get a Loan to Buy a Franchise or Buy a Business: writing a business plan to buy a franchise is a good idea because even though the franchise may have a 'sample plan or template' to help you get financing (some have preferred loan packages they can offer) it is always a good idea to do your own 'due diligence' to protect yourself - especially with older franchises. Older more established franchises tend to be quite saturated and any markets that are available are often marginal markets with limited potential. Writing a business plan to buy a franchise is like an insurance policy that ensures that any decisions you make are well informed and carefully thought out. If you are buying an existing business you will need a business plan whether you go to the bank or get the seller to finance your purchase. Just like a franchise, writing a business plan will protect your interests and make sure that you are thinking for yourself, informed and most important - know you have a plan to succeed.


• To get organized: depending what you are using as a guide to write a business plan it could be a great tool to get your business started or it could be setting you up for failure. Using templates or sample business plans to help you start a business is like writing your own legal agreements. You can do it but - all it will do is get you in more trouble than if you had done nothing at all. If you need a in-depth guide to help you write a business plan for a start up, my 'Tips and Traps for Writing an Effective Business Plan' was written for that express purpose. It will walk you through the entire process of writing a business plan and stop you along the way with suggested actions and questions you need to answer. If you follow it all the way through to the end you will have examined every area of your business, be well organized, and be ready to get started. Expect to invest somewhere between 50-300 hours writing your business plan.


• Because I have to, my banker asked for a business plan: if you have not already heard your banker ask you for a business plan. You soon will. In fact, you can do a lot to impress a banker by taking your completed business plan to your first meeting. I guarantee he/she will be impressed because most people come into the bank with their hat in their hands asking for a business loan. If you do not have a business plan, the banker has no choice but to do the '20 Questions' routine and then if they are still interested ask you "for a copy of your business plan" and then say "come back and see me when you have your business plan and we can get the process started". If you want to look and be treated professionally and seriously - take your completed business plan with you to the first meeting. Take tome now to learn how to write a business plan with my 'Tips and Traps for Writing an Effective Business Plan'.


• People tell me I need a business plan: if you have friends, family telling you to write a business plan you are a lucky person because it means you have people around you who care and whose opinion you value. It may also mean that they are not 100% sold on your business idea and telling you 'need a business plan' is there way of telling you indirectly that they are not 'sold'. if you cannot sell the people who are closest to you on your business idea perhaps it has flaws or more risky than you can see right now. See the next tip to read how a business plan can help reduce your risk.


• I want to write a business plan to reduce my risk: this is another way of saying that you want to increase your odds of success. Writing a business plan using my 'Tips and Traps for Writing an Effective Business Plan' book should reduce your risk. I say should because a business plan is only as good as the due diligence exercised examining the assumptions you have made in your plan. An assumption is something you 'accept as true' but have not taken the time to 'prove it' to yourself. In other words, taking the time to obtain independent, third party verification of beliefs, data, or facts. You should strive to eliminate all assumptions in your business plan by replacing an assumption with facts you have obtained through research, fieldwork or real world testing.


• No Experience: of you are starting or buying a business that you have no experience in you are either a gambler at heart or you have not thought it all the way through. For example, you find yourself unemployed and think that now is the time to make a career change by starting or buying your own business. Good for you! But you need to be extra careful because while you may be an experienced manager that is not the same as owning a business. There are many things an owner deals with that a manager doesn't. If you are a young person and you just feel the drive to be self-employed you are joining the ranks of many of your classmates and peers. The ranks of the entrepreneur are being filled with the young (Millennium born after 1985) and older baby boomers (age 55+), which are both starting or buying a business for the first time. Learning to write a business plan can be an excellent tool to provide both groups with perspective and insight into the physics of owning a business.

Business Plan as a Sales Document

While the primary purpose of a business plan is a sales document to sell investors and bankers on the viability of your business and your ability to repay the loan or investor - a business plan can be used to research and validate a business idea, document your plans for the business, and help you stay organized.

Beware of the B.S. Factor

To stay organized you will need to reread your business plan and compare your financial projections to your actual results. Then make changes based upon what you learned in the process. Otherwise you will join the ranks of those bankrupt firms who had a business plan but never reviewed it or worse never made any changes after reading it. I think they fell into the worst trap of them all - believing their own B.S. Not a good trait for a profitable and successful entrepreneur.