In Chapter 1 of the book How to Really Create a Successful Business Plan, author David E. Gumpert suggests that a carefully crafted business plan isn't useful just for getting start-up financing, but can be an important sales tool for the life of the business.
How does a business plan sell the business? By allowing the business to exploit the opportunities that arise in the life of a business from start-up to maturity--and are essential to achieve success. A written business plan becomes your company's representative, much as a salesperson or executive serves as its representative during sales and conference presentations and meetings. Here are some of the main ways in which a business plan can serve your company:
- Obtaining bank financing
For most banks, it's usually enough that an applicant provide past and current financial statements to get a formal hearing for a loan. But in today's world, just getting a hearing isn't enough. Because more companies are seeking bank financing than banks have money available, only those businesses that make the best case will receive funds.
A business plan helps set you apart from the crowd. I've had any number of bankers tell me that while their banks don't require business plans, companies that submit plans immeasurably improve their chances of getting the funds they seek.
Keep in mind that bankers are nervous, averse to risk. A written business plan carries an important message even before it's read: it says the company's executives are serious enough to do formal planning. That's an important message because bankers believe that those individuals who plan are better risks than those who don't, and more deserving of bank funds.
- Seeking investment funds
Venture capitalists and other investors require a business plan from any company that wants to be taken seriously for funding. It's the first thing most ask for, much as a personnel manager asks job applicants for a resumé . Investors use business plans as a screening device, looking to be turned on to a business with significant growth potential. When something catches their eye, they read more carefully and, if they are still intrigued, they will come back to the executives for further discussion.
- Arranging strategic alliances
Strategic alliances are arrangements between large and small companies to carry out joint research, marketing, and other activities. They have become more common in the last few years. For small companies, arranging a strategic alliance with a large company can mean gaining access to important financial, distribution, and other resources. But before a large company will even consider a strategic alliance, its executives will want to examine a smaller company's business plan.
- Obtaining large contracts
Smaller companies seeking to obtain a large chunk of business from a major corporation can encounter a common obstacle. It comes when the corporate representative says something like: "Everyone knows who we are, but very few people know who you are. More important, we don't know whether you'll be around long enough to fill all the obligations we expect for the big bucks we'll be paying you." At this point, producing a business plan can go a long way toward reassuring a corporation.
- Attracting key employees
For a smaller company going after a top-notch executive, there's usually a two-way due diligence process going on. The company wants to be sure the executive is as good as presented and the executive wants to be sure the company is right for his or her talents. A business plan can save a lot of conversation, besides instilling the necessary confidence to snare that hotshot.
- Completing mergers and acquisitions
Whether you want to sell your company or acquire another one, a business plan can go a long way toward helping you stand out from the crowd. And in today's frenzied merger/acquisition world, that can be very important. When you go to sell your company, you'll be scrutinized by potential buyers who are looking at many companies. One large chemical firm looked at more than 200 companies in its search for a small specialty chemical business to acquire. When it found a company that looked solid, its business plan helped seal the deal.
This material was excerpted from Chapter 1 of How to Really Create a Successful Business Plan by David E. Gumpert.
Article Copyright © 1996 Goldhirsh Group, Inc
Article also by Gumpert: The Basics of Business Plans: Sell, Sell, Sell