How Business Plans Drive Value When Selling and Buying a Business
As the year comes to an end, businesses reflect on their successes and challenges to prepare for the upcoming year. As businesses evaluate market trends, revisit goals and forecasts, and set ambitious strategies for the year ahead, National Write a Business Plan Month is a reminder for businesses to set time aside to plan for the future. Whether it's selling, buying, or valuing a business, a business plan serves as a powerful tool that can help secure financing and showcase potential growth opportunities.
What is a Business Plan?
A business plan is a detailed framework that communicates a company's goals and objectives, while laying out the strategies and efforts it will use to reach them. For startups and well-established businesses alike, a business plan is invaluable for managing every stage of business operations, providing a guiding framework for structuring, running, and growing the business.
Business plans can be structured in a variety of ways, but a traditional plan typically spans 15-20 pages, allowing for detailed descriptions to be included. For startup businesses, a lean business plan condenses important information into a concise one-page document, focusing on key elements of the business.
When creating a business plan, it is important to include essential components such as:
- Executive Summary: A concise overview of the company’s mission, providing top-level information on products or services, leadership, employees, financial status, operations, and locations.
- Company Description: A comprehensive account of the organization, highlighting the issues it addresses, its strengths, and the competitive advantages that set it apart.
- Market Analysis: A thorough examination of the industry's future outlook, the competitive landscape, and market research.
- Organization and Management: Details about the business’s structure, legal entity, and organizational charts illustrating talent depth.
- Service or Product Line: A description of the products or services, covering pricing and unique benefits for customers.
- Marketing and Sales: Insights into customer acquisition strategies and all marketing and advertising campaigns.
- Financial Projections: Established businesses provide in-depth financial statements and balance sheets, whereas startups prioritize the establishment of financial targets.
- Appendix: A repository for supporting documents such as credit history, licenses, permits, and legal documents.
Business Plans for Selling, Buying or Financing a Business
Creating a business plan is an essential step when starting a business, providing a foundational roadmap for success. However, its importance extends beyond the startup phase, especially when buying or selling a small business.
For prospective buyers, a well-documented business plan offers valuable insights into the target company’s potential, risks, and opportunities. Sellers armed with a comprehensive plan can confidently illustrate the value of the business, playing a pivotal role in exit strategies. Whether transitioning the business to a family member, selling to a partner or competitor, or listing on the open market, a well-thought-out plan ensures a smooth and successful transition.
For business owners seeking additional funding or entrepreneurs looking to buy a business, a business plan can help to unlock financial support. Lenders and investors go through these documents to assess the business’s viability, potential for return on investment, and associated risks. A carefully prepared business plan instills confidence in stakeholders, encouraging them to invest in your business or entrepreneurial opportunities.
A business plan is an effective roadmap for businesses to follow as they plan, grow, scale, and plan their exit. Serving as a strategic tool, it provides clarity, direction, and confidence to all stakeholders involved in the intricate processes of buying, selling, and valuing a business.