Writing A Business Plan:
Evaluating Business Plans - What Lenders Look For

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.

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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. Begin evaluating business plans by looking at:

• Introductory page
• Background on company/idea
• Current status of company
• Biographical information on principals
• Financial background
• Financial projections
• Technical information on the product/service/industry

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.

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  for an inexpensive way of accessing several hundred of them.   

It will only take reading a few of the sample business plans included in each package.  Then you will know what lenders know:  That 95% of the business plans written are soooo dull, so blah, so uninspired that it is difficult to say Yes to any of them.

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 usually 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.

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