The PPS Solutions team spends quite a bit of time working with entrepreneurs acquiring businesses – some for the first time, some serial acquirers and even a few private equity companies building portfolios of companies. Of course, starting or acquiring any business is an exhilarating journey filled with endless possibilities and a TON of work. And when you’re in the throes of the process, it’s easy to “skim over” any of the voluminous number of requirements and “hoops” your lender wants you to jump through before they give you the usually-much-needed capital to close on the transaction. Some of the “hoops” are just that – something the bank or SBA needs in their files to show that they did their diligence before approving the loan. However, we believe one of the most crucial documents is often not appreciated enough: the business plan!
Sure, the business plan is a templated document that your lender is going to require as part of your loan submission. But we believe it holds far greater significance and should be a specific area of focus in building your vision of what you WANT the business to become. You could think of it as the blueprint for your venture, listing out the method you plan to construct and the materials and specifications you plan to employ along the way. Or you could think of it as a roadmap, stating your ultimate destination and guiding you through every intended step of the way. And of course, if you’re working anywhere near the aviation sector, we believe you should call it a flight plan – it would be both correct and witty. Any way you look at it, however, the business plan functions to increase your chances of success exponentially. We've seen firsthand the transformative power of a well-crafted business plan. Not only does it provide clarity and direction to its audience, but as mentioned, it also serves as a vital tool for obtaining financing, especially under programs like the Small Business Administration's (SBA) 7(a) program.
Why is a Business Plan Essential?
Clarity and Direction: A business plan forces you to articulate your vision, mission, and goals in a clear and concise manner. It's your roadmap, outlining the steps you need to take to turn your vision into reality. Without it, at worse you risk wandering aimlessly and losing sight of your objectives and at best, you’re never sure if any success could have been better.
Obtaining Financing: Whether you're seeking funding from investors or applying for a loan, a comprehensive business plan is a non-negotiable requirement. In particular, for entrepreneurs looking to secure financing under the SBA 7(a) program, a well-thought-out business plan is an essential and required part of your loan submission. Lenders want to see that you have a solid strategy in place and that you've done your homework. This includes conducting research in the market you intend to operate in, identifying your target customer base or audience, and, perhaps most importantly, presenting realistic financial projections.
Supporting Financial Projections: The financial projections in your business plan should be as well-thought-out and documented as possible. They should include as much detail as practical and any financial forecasts need to be supported by sound assumptions. For example, if you are buying a business in a certain industry which economic data says is growing at a certain percentage and your sales forecast shows your growth at a higher percentage, you would want to explain how and why you expect this to occur. Perhaps you intend to take market share from a competitor? Perhaps you believe the market data is incorrect or your business or product will move the market or create new markets? It’s important to understand these assumptions so you can explain them to the lender, and also ensure that you align the financials with your business strategy after you buy the company. This level of understanding and documentation in your plan is crucial not only for securing financing but also for guiding your day-to-day operations. Of course, we also believe this is where a fractional CFO can truly add a ton of value to your business plan. They can help you develop realistic revenue projections, budget effectively, and ensure that your financial goals align with your overall business strategy both during the acquisition and during execution of the plan post-acquisition.
Non-Financial Areas: While financial projections are essential, a comprehensive business plan should also holistically address all aspects of your venture. While none of these areas avoid finance altogether, there are many parts of the strategy that intertwine with business operations to create a comprehensive and cohesive plan. They include:
Market Analysis: Understanding your target market, industry trends, and competitors is vital for success. Your business plan should include a thorough analysis of the market landscape, including potential opportunities and threats.
Marketing and Sales Strategy: How will you reach your target audience and convert leads into customers? Your business plan should outline your marketing and sales strategy, including tactics for customer acquisition and retention.
Operations Plan: How will your business operate on a day-to-day basis? This section should cover key operational details such as location, equipment, suppliers, and production processes. Market and Marketing will tell you what your business does, here you explain exactly how you’ll do it. Are you making something? How many widgets can each machine or person produce in a day? How many trucks do you need for delivery? If you’re providing a service, how will it be provided? What requirements are there for licensure, infrastructure, or support? Everything about how your business runs can and should be built into the ops plan.
Management Team: Investors and lenders want to know that you have the right team in place to execute your vision. Your business plan should introduce key members of your management team and highlight their relevant experience and expertise. The resumes and experience of your team can make or break an investment decision.
Risk Management: Every business faces risks, whether it's market volatility, regulatory changes, or unexpected events like natural disasters. Your business plan should identify potential risks and outline strategies for mitigating them.
At PPS Solutions, we understand the importance of taking a holistic approach to business planning. Our team of experienced CFOs and supporting analysts can work with you to develop a comprehensive business plan that addresses both financial and non-financial aspects of your venture. From crafting realistic financial projections to providing strategic guidance on market analysis and operations planning, we're here to help you build a plan for success – whether you call it a roadmap, a blueprint or anything else.
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