Top 10 Tips for Business Planning

I was asked once again for my 10 top tips on business planning. I can’t do that without noting the different uses of business plans in different situations. I ended up with more than 10 tips, but they are more specific to context.

5 Major tips for all business planning

  1. Form follows function. Like anything else in business, a business plan should be judged good or bad not in a vacuum but in its business context with its specific business objective. Most of the online discussion about business plans is focused on business plans related to seeking investment, and I’m going to make the assumption in this answer that you are asking about those. But in real life, the plan related to seeking investment is a subset, a special case. Most real business plans are about managing a business and need a lot less description and research than the business plan related to seeking investment. In most cases, a lean business plan fits the business purpose best.
  2. Projections are important not for their actual numbers as much as for their presentation of drivers, relationships between growth and spending, key spending priorities, sales aspirations, and assumptions related to cash flow. They have to be solid and integrated, but accuracy is much more a matter of transparent assumptions than accurately predicting the future.
  3. All business plans should establish strategy, tactics, milestones, tasks, assumptions, and essential numbers (projected sales, direct costs, expenses, and cash flow).
  4. All business plans should develop accountability and tracking.
  5. All business plans should be reviewed and revised at least monthly. The review should include looking for changed assumptions and analyzing plan vs actual results with management of the difference.

10 Tips on business plans for seeking investment

  1. Investors invest in businesses, not plans. The business plan is a necessary but not sufficient condition for finding outside investors. The plan describes the business and what it might become, and that’s all. A beautifully written, edited, and formatted business plan will not make a less investible business more investible. The investment decision is about the content – the team, the market, the differentiators, the scalability, traction so far, validators, growth potential – not the presentation or formatting of the plan. The best use of business plans starts with founders using plans to establish strategy, tactics, milestones, and (especially important) essential projections of sales, spending, headcount, startup costs, capital needs; it’s for the founders to know, first, what they plan to do. Later, as the investment process proceeds (if it does), the latest regularly-revised plan will serve as a companion piece to the pitch and a key document for due diligence.
  2. You need both pitch and plan. The pitch is a summary of the plan, organized according to highlights for investors, ideally a way to present your business in a structured way. The business plan is the bones of the pitch, like the screenplay, setting strategy, tactics, milestones, market, and essential numbers.
  3. The normal flow is from introduction, to pitch, to business plan in detail. It’s trendy to say investors don’t read business plans, but what actually happens is they only read business plans of the businesses they are interested in. They reject businesses from intro and pitch, without reading the business plan. The business plan is an essential component of normal due diligence. Never do a pitch without having a plan, because if investors like the pitch they will ask questions that you can’t answer without a real plan. Things like: Could you grow faster with more money? What are your headcount assumptions? How much are you spending on marketing expenses? What are you assuming for payments and collections lags?
  4. Cover the bases. No need to elaborate here. There are tons of good outlines available, plus books, blogs. Down below I have some specific resources related to my work; but not now. There is no single best outline to use, but investors will want to know about the market, potential growth, competition, differentiation (or secret sauce) strategy, tactics, key milestones, important assumptions, the management team, and financial projections including use of funds, projected sales, income, balance, and cash flow. Use your common sense to put first things first and organize it all well.
  5. A good summary is essential. Many investors will read only the summary.
  6. Keep it short. Consider doing just a lean business plan with key info and using your pitch to supplement with more summary and description. Cover the key points and move on.
  7. It’s about business, not science, not technology. Don’t show off your knowledge. Cover the business essentials including marketing, distribution, pricing, channels, etc.. Leave the science and technology for supplemental documents.
  8. Forget discounted cash flow, net presented value, IRR, etc. Investors don’t care about uncertainty compounded on uncertainty. They want to know real assumptions that matter. They’ll use their own knowledge and experience to decide about future values.
  9. Don’t hide anything. It’s not hard to find the key points that investors want you to cover. What’s most important, what order, and how much detail depends on your specifics. Make essential information easy to find. Don’t leave anything obvious out.
  10. Keep it fresh. That’s why you don’t write a long treatise. A business plan’s shelf life is about a month. Don’t think you can write it once and then live with it for months.

6 Common mistakes to avoid with plans for investors

  1. Big profits prove nothing but that you don’t know the business. The most common mistake by far is on profits. Startups that grow don’t produce profits. Investors make money on valuation increases, not profits. Real businesses rarely produce more than single-digit profits. Big profit projections are sophomoric. Take all those profits and dump them into marketing expenses and you’ll be better off.
  2. Prepare to defend hockey-stick projections with believable assumptions and back-up info on how this is realistic. Unsupported huge growth projections are a crock and everybody knows it.
  3. Being the low-cost provider is very last millennium. Markets split. The low-cost providers are the big dinosaurs with huge capital bases.
  4. Don’t give all the founders C-level titles. Settle down. Execute, grow, meet milestones, and then up the titles if you haven’t had to bring in some new people.
  5. Plan to pay your key people. To be honest, some investors like to see founders living on ramen and losing their families. Most don’t. Most investors want you to pay the key people enough to preserve their lives and work ethics, less than true market value, but enough to live on decently.
  6. Respect normal sales cycles, marketing benchmarks, and cash flow patterns for your industry. For example, if you sell to enterprise it’s going to take a lot of structure, patience, and waiting. If you’re B-to-B then you’re going to need working capital to support receivables. And if you’re industry spends 35% of revenue on marketing, then so do you. Or more, because you want to grow.


  • Online MBA says:

    It is amazing content. Please keep it up…Thanks

  • Online MBA says:

    It’s very knowledgeable and useful for me.
    Thanks For it!

  • Elly says:

    I have gone through this article and I really found it too interesting and useful for everyone. Thanks for sharing.

  • Rachel Frampton says:

    In my opinion, people who are planning to start a retail service must seek help from a business development service taht will be able to help them with various marketing strategies. Well, I agree with you that it would be a great idea to come up with a business plan first because this will help them see their service’s flow. It’s also a great thing that financial projection is very necessary.

  • Elena says:

    Reading one of the best articles about tips for business planning. Thanks for sharing!

  • Knowledge Train says:

    Great and helpful blog to everyone. Thanks a lot for sharing this amazing article. I agree with your idea that “Don’t hide anything. It’s not hard to find the key points that investors want you to cover. What’s most important, what order, and how much detail depends on your specifics. Make essential information easy to find. Don’t leave anything obvious out.”

  • Steav Smith says:

    Very well written article with full information. Thank you for sharing this great info. It’s nice to know and read about this stuff. I would definitely try to follow these suggestions.

  • rohit aggarwal says:

    Thanks for the information

  • Jay says:

    I like the idea of covering the main points and then moving on. Keeping things short can really establish what kind of business you want to lead. And, if needs be, you can always revisit that plan. Thanks for the tips!

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