It was late on a Saturday afternoon when Don and his management team were finishing up an internal review of their company operations. The company had been on the market for 18 months without much interest from potential buyers. Don wanted to know why. At the end of the day, Don, the founder, and majority shareholder, gave up as he and the management team could not reach consensus on the reasons there was such little buyer interest. Don was beside himself since revenues were strong and earnings had continued to improve over the past five years.
The following week Don asked our firm for help. We agreed to conduct a business review and analysis of his company to determine what the company needed to do to attract potential buyers. After an exhaustive review, we found a glaring void in his management systems. There was no strategic business plan — only a hodge-podge of numbers, schedules, and projections that made little sense.
We met with Don and his team (all shareholders) and explained that without a solid business plan, no potential buyer would seriously entertain purchasing their company. We advised that a formal business plan was critical to the process of selling Don’s company.
Why You Need to Write A Business Plan
Writing a strategic business plan can take weeks, even months of intense research, writing and rewriting – particularly if you have never gone through the process before. So you might ask, is it worth it? Absolutely. First, you’ll have a better understanding of your own business as well as your industry. More important, you’ll have a set of clearly articulated goals. This will help you organize and manage your business and give you a benchmark against which you can measure future performance.
Before you can begin to put the plan together, you will need to gather solid information about your industry. Every claim your plan makes will have to be supported by authentic sources and accurate information. Information sources include trade associations, magazines, newsletters, industry research reports and annual reports from publicly traded competitors.
Your plan will include your company’s past financial records, including a quality of earnings report from an outside accounting firm. Your financials should be audited or at the very least, reviewed by an independent accounting firm. Also, your business plan should include marketing plans and statistics from competitors so you can compare your numbers to firms of similar size in your industry. You will need research to identify who is buying products or services like yours and what current trends might be changing buying patterns and behavior. Compare this information to who is buying your own products and services.
In addition, find out who finances companies like yours and the details of the loan structure. Also, identify the kinds of companies buying businesses like yours.
Be Realistic, Avoid Hype
Passion and enthusiasm for your company’s storyline is important for the sale of your company, but your target audience will see through hype and sales speak. Instead, strive for clarity, simplicity, and thoroughness. Here are guidelines you should follow:
- Don’t exaggerate
- Make your sentences short and factual
- Guide the reader with bulleted lists, numbered sections and clearly named subject headings and subheadings
- Do not clutter the text with small details that will slow the reading process. Refer the reader to the appendix for more detail
- Provide a table of contents so readers can skip to relevant sections they are interested in
- Keep the plan to about 20 to 40 single-spaced pages, plus the appendices. The appendices can be as long as necessary to include significant detail
After you’ve completed this work, you can begin filling in the various outlined sections of your plan. Regardless of your industry, at a bare minimum, your plan should include a table of contents, executive summary, company/product/services analysis, competitive analysis, investment/purchase opportunity, industry analysis, market analysis, marketing plan, operating plan, manufacturing plan, management team, human resource plan, integration plan guidelines, financial plan and projections, buyer’s exit plan and appendices. More may be required depending on your industry.
I have read scores of business plans of companies and I’ve found the same mistakes over and over again. Here are eight mistakes to avoid:
- Rose-colored glasses
- Unsubstantiated claims
- Overly optimistic projections
- Unrealistic cash flow projections
- Numbers that don’t add up
- Not understanding the entirety of the plan
- Not proofreading the plan
- Unclear company storyline
After all the work you’ve invested, make sure you don’t shoot yourself in the foot with spelling errors or incorrect grammar. Double check the numbers again and again. Produce a professional-looking document.
Remember, you never get a second chance to make a good first impression.