The business plan is a planning tool with a number of audiences and secondary uses. Its primary purposes include testing ideas to see their probable effect on the company, and measuring performance against goals or objectives. Important outsiders who may read a company's business plan include investors, lenders, suppliers and executives who may be joining the company.
The core management team should be intimately involved in the writing and updating of a company’s business plan. Instead of filing the plan away and forgetting about it after the company begins operations, management should keep the plan close and use it for its intended purpose — planning. The first edition of a business plan should point out the problems management is facing, along with the intended remedies. Subsequent plans should track the progress in those problem areas. The financial section of the plan can show the results of improvement efforts over time.
Investors and Lenders
In many cases, the first outside readers of a business plan are the private investors who have expressed interest in investing in the company. Such investors range from sophisticated venture capital firms to local angel investors. These people want to know about return on investment, exit strategies, break-even points and why anyone would want to buy the company’s product or use its service. Bankers and other lenders want to gauge the creditworthiness of company principals, and see what kind of collateral or guarantees might be available to support a loan request.
At nearly every stage in its development, a company will want to have the best possible payment terms with its suppliers. A start-up business will want to negotiate deferred payment terms of practically any length. A company that has been succeeding in its industry will want the best possible payment terms. If a supplier’s credit manager can learn more about the company by reading its business plan — or at least the financial section — the company might be able to negotiate favorable terms.
If a company has been involved in searching for a senior executive to join the management team and has decided on a particular candidate, it may be the right time to make a significant gesture. Management can grant him access to the plan for a certain period of time, after he signs a non-disclosure agreement. This gesture delivers two messages to the candidate. He sees that the company is serious about making an offer. He also sees that the company takes planning seriously and may turn out to be a well-run business — a place where he would like to work.
Charles Crawford, a former commercial banker, has been a business writer in New York since 1990. He has produced marketing materials for an executive outplacement firm, written the quarterly newsletter of a medical nonprofit organization and created financing proposals/business plans. Crawford holds a Bachelor of Arts in English and a Master of Science in international affairs from Florida State University.