What’s the Value of a Business Plan?
A business plan is critical to the success of any business. And, if the plan is frequently reviewed and updated, it becomes increasingly valuable over time. It provides valuable historical information to help a business owner make decisions on the future direction of the company. Effective business planning will enable the owner to both maximize profits and maximize the value of the company. If the exit strategy of the owner is to sell the business, effective business planning during the life of the business will contribute to successfully selling the business at the best possible price.
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What Information is Included in a Business Plan?
The information included in a business plan is also of great interest to a prospective buyer who is evaluating the business as a possible acquisition. Some of the major business areas that should be included in a business plan that would also be of interest to a buyer include the following:
– Mission Statement and Company Philosophy
– Company History
– Short term and long term revenue and profit goals
– Organizational structure
- Current Organization
- Organizational growth plan
- Employee development
- Target market
- Major accounts and/or markets
- Sales and marketing strategies
- Current processes
- Planned and proposed changes to operations
– Product and\or service lines
– Documented history of key successes and failures during the life of the business
Complete and accurate books and records are essential for the successful sale of any business. Typically, a buyer’s first exposure to the confidential details of a business comes in the form of a comprehensive document covering the financial and operational aspects of the business. Presenting buyers with the details contained in a good business plan will make a great first impression and can shorten the time it takes to close the sale. Providing buyers with extensive details upfront can shorten the buyer’s evaluation and due diligence process.
The growth potential of a business is usually a huge factor in a buyer’s decision to acquire that business. Potential can be difficult to prove, but a well-documented business plan can give a buyer a comfortable level of understanding about the potential opportunities and challenges for the business in the future.
A business owner’s claims about potential are sometimes discounted by buyers, unless those claims are supported by the type of in-depth historical and current data that is included in a good business plan. A business plan not only helps to prove potential; it also provides the buyer with several ideas on a possible road map on how to achieve that potential.
The first time business owner will sometimes experience anxiety over their ability to successfully manage a business, even though they may be highly qualified. A business plan should help to relieve that anxiety. The plan not only provides valuable information on how to manage a business, but also enables the buyer to benefit from the years of experience of the previous owner. The new owner can see a history of both successes and failures in the business, and they will benefit from the lessons learned by the previous owner.
Gaining Advantage When It Comes Time To Sell
When the day comes to sell your business and you have a strong historical and current business plan to present to buyers, you will have a significant competitive advantage in attracting the attention of qualified buyers and in recognizing the best possible price for the sale of your business. Many business owners do not have a written business plan. And, for business owners that have a plan, that plan is often lacking in good details and is almost never updated.
In summary, a good business plan is essential for managing a business effectively and will enable the owner to better grow the value of the business over time. If you have owned a business for several years, what value would you place on a document that contains the details of every significant development, event and decision made during the life of your business? How valuable would this information be to a new owner?
- To Sell or Not to Sell Your Business - July 15, 2014
- The Value of a Business Plan in Selling Your Business - December 19, 2013