Why a business plan could be rejected

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Handling rejection is probably one of the most important life lessons you will need to learn as an entrepreneur.

Being told ‘no’ by a potential customer is a lot easier to handle, however, than receiving the same response from a potential funder or banker because your business plan has been rejected. But by paying attention to some simple guidelines, you can minimize the potential for the latter to occur.

Here are some reasons why your business plan may be rejected:

Insufficient detail A business plan short on detail will tell a potential funder a number of things. Either the entrepreneur is inexperienced and unaware of the format and detail required. Or the entrepreneur has not sufficiently applied his or her mind to the business model and prospects. In either case, this business plan is likely to be rejected.

Unconvincing prospects Bankers see a great number of business plans every year and will be able to tell if the business idea is a viable one. Either the market is saturated - making the entry of another business unviable - or the business model is flawed and unlikely to succeed.

Insufficient experience This point is probably the most frustrating for young entrepreneurs. Unfortunately, funders like to know that the business owner has a track record in the industry or enough experience to navigate the burden of running a small business. No bank is willing to lend money to a business that cannot pay its debts.

Unrealistic projections A red flag for potential funders is a set of financial projections that are clearly unrealistic. Simply saying that you expect to generate a certain volume of sales without any evidence to back those claims will immediately breed doubt in the mind of the banker of your authenticity.

Business structure It is crucial that you have a properly registered business that is compliant with the various laws and regulations. Any deficiency in this regard is likely to make your venture riskier, and therefore unattractive to a banker.

 

Key takeaway: Funders are by their very nature averse to risk. It is your responsibility to ensure that the business plan sets their minds at ease by showing in your business plan that you have a viable business idea, the experience to execute on that idea and a realistic vision for the business.

 

 

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