Importance Of A Business Plan | Buyer & Seller Tips | Firm Exchange

The Importance Of A Business Plan

Post written by Firm Exchange on May 10, 2018

A business plan is essential to the sale of many businesses.  The goal of the business plan should be to lay out the value of the underlying company.  At its core, a business plan is a guide that outlines future goals and predictions.  It also maps out how those goals and predictions will be achieved.  Although many people associate a business plan with a new business, it should be a living document that evolves alongside the business.  A good business plan gains value as a business ages and is a vital tool during the buying and selling process.  Let’s further discuss the reasons for why a business plan is important.

Creating a Business Plan

As a seller, you will likely already have a business plan from the early days of your company.  However, if you never created a business plan or if you haven’t updated it recently, now is the time to think about what things to include in this document as you prepare to look for buyers.

Updating a business plan doesn’t need to be overwhelming.  Many business plans written today present a more simplistic and modern take on the traditional format.  Here are some key elements that are useful to include in nearly all plans, across nearly all industries:

  • Mission statement
  • Outline of key personnel
  • Company history
  • Strategic overview of the business and industry
  • Summary of key financial metrics, including applicable forecasts

Why Do I Need a Business Plan if I’m Selling My Business?

As a seller, you are seeking the best price possible for your business.  Part of that means appealing to as many buyers as you can, including those who may be seeking outside funding to buy the business.  For those would-be borrowers, a business plan is critical to raising money.

Your goals as a seller are to highlight what your business has to offer, how much it is worth, and why a buyer should want it.  A well-thought-out business plan can help you with all three of these.

Also, a business plan is a great stepping off point into the due diligence process.  A buyer’s first look at the more sensitive information of a business is often going to be given through historical records and a comprehensive document reviewing finances and operations.  Being transparent with this information and, if possible, providing a history of updated plans, can lay a positive foundation for your relationship with your buyer.

Furthermore, nearly every business has blemishes.  By being upfront with both the good and the bad, you begin to build trust with would-be buyers.  Not only will he or she be more willing to give the sale serious consideration, but the initial sales process can move along more quickly.

Your goals as a seller are to highlight what your business has to offer, how much it is worth, and why a buyer should want it.  A well-thought-out business plan can help you with all three of these.

Why Do I Need to Look for an Updated Business Plan if I’m a Buyer?

As a buyer, you are trying to understand the business you are considering purchasing.  This includes its past, present, and future.  A comprehensive business plan can help to answer many of these questions.  If a business plan has been well-maintained, it will be easier to get a complete picture of the company.  This in turn can help minimize the time it takes to complete your due diligence process.

Additionally, if you are looking to raise capital to fund the acquisition, you will likely need to present your lender or investors with an updated business plan, detailing the company’s financials.  Lenders will primarily be focused on the ability of the business to repay the loan.  As a result, it is important to make sure the projected growth is reasonable and supported by recent business trends.

Importance Of A Business Plan For Buyers And Sellers | Firm Exchange

Most owners will try to maximize their profit opportunities by placing the business in the best possible light.  Thus, while the seller’s work can be a valuable head start, it is important for you to verify the information.  Consider asking for supporting information and any relevant details you feel are missing.  Remember what was written earlier: practically no business is perfect.  It will be up to you to determine which issues you can live with, and which you cannot.

An Important Piece of the Puzzle

A business plan can be one of the most critical documents in a successful sale.  At its most basic level, it can shed light on the status of a company.  But at a more in-depth level, it can also illuminate how well maintained a company has been, describe a seller’s management style, and lay out a possible road map for the next owner.

Don’t be scared off by the perception of business plans as rigid, formal documents.  Make the business plan concept work for you and help you to improve your chances of a successful transaction.

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DISCLAIMER: The information contained in this article is for informational and discussion purposes only, and should not be relied upon without seeking your own professional advice. The Firm Exchange, LLC is not a law firm, accounting firm or professional services firm, and accordingly it disclaims any liability for any reliance on the contents of this article. As each situation is unique, you are encouraged to discuss your specific situation with a qualified attorney, accountant and/or other relevant professional services provider.