Writing Winning Business Plans
by David Madison
Last month we described the perfect candidate to buy his or her first business. In terms of business and industry experience, here’s our version of the gold standard:
School and real life experience in the industry. Even better, he or she has been successfully managing the business they wish to buy or one just like it, with the current owner pretty much absentee and now ready to retire. The business under our candidate’s management has performed like a champ, growing both sales and profits each year.
A business plan has two primary purposes. The first is the obvious one; it’s a necessary step in obtaining financing. There’s another purpose, maybe a more important one. The business plan forces your buyer to reflect on what they are getting into, and then to organize their plans and strategies. If done properly, a good business plan is a document that the new business buyer can refer to on a regular basis as a reminder of the things they need to do as owners to achieve their objectives. Many successful business owners update their business plans on a regular basis, as it forces them to spend important time working on their business rather than just in their business.
Let’s assume that we are now working with a buyer who has good credit and enough money to purchase his or her business, but has no direct industry experience. Last month we discussed how to build a winning resume by highlighting the relevant skills, experiences, and successes from one’s career that will apply in the new venture. The resume is a backwards look. The business plan looks forward. Here’s your buyer’s opportunity to show off their skills, knowledge, and experience by projecting themselves into the new business. This is also where they’ll show that they’ve done the hard work of understanding and mastering the details of the industry and their new business.
Please note that along with the business plan, the buyer/borrower will also have to prepare financial projections and assumptions for those numbers. We consider these projections and assumptions to be a central part of the business planning process.
Now a big warning…There will be times when your client is challenged and perhaps overmatched in completing the business plan. No matter how much you want to help out your client by just doing the plan yourself, DON’T DO IT!!! There are many reasons why you shouldn’t. The first is that if you do the work and your client doesn’t, the loan underwriter will quickly figure that out during the interview with the borrower. Your client likely will not be able to answer his or her questions, nor be able to demonstrate an understanding of the business. The loan dies and so does your deal. Not a good outcome, but maybe not the worst one possible.
Let’s say that your buyer somehow makes it through the interview and the loan is approved and the transaction closes. Sure you got paid, but you’ve left your client in possibly a dangerous situation, owning and running a business they really don’t know enough about to manage successfully. That’s a recipe for disaster, and when the dust settles it won’t look good or play out well for anyone including you.
Do whatever you have to, but lead your client through the process of completing a carefully and thoroughly thought out business plan. You can provide lots of the information that your client will need, and point them to the many resources that are available. Stress to your client how important the business plan really is, that taking on this project as a vital step in the business acquisition process will make them better business buyers and owners. The key is simply to demonstrate that they understand the industry and business they are buying into, and that they have a viable plan for effectively managing and growing the company’s sales and profits.
There are many resources out there that’ll help your clients understand the basics, lots of books and how-to guides both available in bookstores and on-line. We offer a tool named the “Borrower Transitional Questionnaire” that we use to bridge the gap between a borrower’s resume and the business plan. And we’ll be happy to provide templates, samples, and guidance to get started, and then feedback and encouragement along the way.
AskDiamond@easysba.com is always available for specific questions regarding all SBA rules.