You think
evaluating business plans is a piece of cake? It might be relatively
easy for a classroom instructor. It is pure hell for investors.
Tales of "lousy business plans"
are legendary. Fred Smith, founder of Federal Express, received a
"C" in his business school presentation of his idea.
"Not practical," said the Prof. Yeah, right. And bees
can't fly.
Every single investor wants The Next Great
Thing, no matter what it is. And no matter what it costs.
Yet there is not a business plan that was
ever written that adequately describes a business. Honest. I've
read hundreds of them.
So what's an entrepreneur to do?
FIRST,
UNDERSTAND THE TECHNICAL ASPECTS -- THE BASICS OF EVALUATING BUSINESS PLANS
There's just no getting around the fact
that each and every business plan needs certain information. Every
lender/investor looks for some specific pieces of information in evaluating
business plans, such as:
Take the time to learn
how
to write a business plan. This site is an excellent
beginning. Don't be concerned if you go through several drafts.
When you hit the right tone, you will know it.
If you start out with a box full of
information, and end up with 20 pages, you are definitely on the right
track.
 |
 |
 |
| Start
out with your 7-Step Business Plan template, a template created
in MS Word and Excel. Add a personal touch, and Voila!
your winning business proposal is in place.
Click on the book covers for
more information. |
As hard as it is to believe, a
conversational style business plan is often your best choice. This is
not a dissertation. It is an introduction. The lender/investor
is meeting you, perhaps for the first time. Let your own voice come
through. Don't SELL your company. Just tell about it. Your
enthusiasm and commitment will do the selling.
Before ever submitting your business plan,
make sure you have these documents in hand:
- Corporate documents/ dba filings
- Operating documents for the business,
with all prior contracts, former loan documentation, government
contracts, large supplier contracts
- Financial documents for past five years,
including full Profit and Loss statements and Balance Sheets.
These should be audited if possible. The name of your accountant
should be prominent in the financial documents.
- Personal financial statements for all
principals and spouses.
- Tax returns for the past five years for
all principals and spouses.
- Legal documents pertaining to the
business, such as patents filed, copyrights, any lawsuits or threatened
lawsuits.
- Employee records for past five years,
including disciplinary action contemplated or taken against any
employee.
- Sales tax records.
- Employee tax records.
- Retirement program records, including
the plan and all its amendments, with all contributions from the
company, past and projected.
- Stock ownership records, with all stock
options listed, both those granted and those committed.
Obviously, if your company is smaller, or
just beginning, you won't have these documents. That's fine.
Evaluating business plans from startups is a bit of a different process. But
do gather together everything you've got, and make sure you have an extra copy
on hand to give to the lender/investor. If the interest is there, be
ready to move.
Or, you could say, "Hey, let me get back to you in
a few days when I've had time to look in the attic." It's your
choice.
BUT
MORE, MUCH MORE THAN THIS, YOUR BUSINESS PLAN NEEDS A PUNCH
First, evaluating business plans means
knowing what a good one is, what a bad one is, and how to tell the
difference. Read some. See the Business Plan Library (below) for
an inexpensive way of accessing several hundred of them.
Well, what do you think of
them? Evaluate these business plans as if you were the investor. Yeesh.
Unless you were very, very lucky, 95% of them were so boring you find it
hard to believe that they are used as examples of business plans.
That is what every investor and every
lender is faced with day after day after day. Evaluating business
plans is boring. Once in a great while a business plan will come
across that is original, that has a bit of pizzazz. It may not be the
best idea around, but it gets read.
That's your first goal: Just get it
read.
Try including an online
business plan on a disk. Get as far
as you can without outside funding. Look to alternative
financing sources. Use marketing
stats from recognized companies.
Above all, don't be afraid to be
human.
MAKE
A GREAT FIRST IMPRESSION
From the moment the envelope arrives at its
destination, you need to be spiffed up. All the basics, of
course: No tattered pages, no pale print.
But first, arrive with class. Does
that mean via FedEx? Not by a long shot. There was a time when
this sort of flamboyance was accepted, even respected. No more.
Yesterday I received two pieces: an expensive software disk/book, and a book
from Amazon. Today I received a painting from a client. None of
these items came via FedEx, or any other delivery service. All came
via the U.S. Postal Service. I was surprised, but pleasantly so.
All arrived in great condition, and each was shipped at a very reasonable
cost.
And when the investor first sees your
business plan, make sure that first impression is a good one.
Pictures, images, graphics, charts -- use whatever represents your company
in the best light. Yes, right up front on the cover. You
honestly would not believe how far ahead this places you.
UNDERSTAND
THE REVIEW PROCESS FOR EVALUATING YOUR BUSINESS PLAN
Bankers and investors work very differently
in evaluating business plans. Being aware of those differences will
help you create a business plan best suited for your purpose.
Your local banker is not a decision
maker. S/he is more likely a conduit of information. The local
banker can tell you a great deal about what the bank is looking for, what
industries, what range of funding, etc. But the real business plan
evaluation is done "downtown". You will probably never meet the folks
"downtown", so your plan needs to communicate a huge amount by
itself. SBA loans
often fall into this category.
Venture capitalists will evaluate a
business plan by process of elimination. The first run through
eliminates about 95% of the business plans submitted. Yeah, your
written plan really has to grab them, right out of the starting gate.
After that it becomes more of a conversational communication. You may
be asked to give presentations, provide additional information, etc.
Angel investor groups are often more
committee dominated. One or more investors review your initial
presentation and select those who will present to the group. The
actual group presentation could be a few minutes to an hour or so, depending
on the angel group.
The thread that binds all these procedures
together is this: YOU'VE GOT TO GET THEIR ATTENTION. And
once you've got it, you've got to show that yours is the best opportunity
around.
I know this is hard to believe, but simply
because you are taking the time to research business plans now, you are
absolutely 90% of the way there. When lenders are evaluating business
plans, yours is very likely to land on top.
Back to top of
Evaluating Business Plans
