A reality check when you first examine the feasibility of your business idea, which forces you to consider all relevant factors.
Just as a person seeking a job prepares a resume that outlines qualifications, experience, and other relevant information, a business will have a variety of uses for a “resume” of its own. The business plan is that resume. To the extent that it reflects the reasonable plans of a carefully managed business, it gives its audience a positive image of what your business is and what it can be expected to do.
For vendors and suppliers. When you negotiate with a key vendor or supplier, you’ll want to obtain the best prices possible and terms that permit you to defer payment for some period and/or obtain a discount by prompt payment. The terms you’ll be able to negotiate will depend in large part on the vendor’s practices and on the vendor’s perception of your desirability as a customer. Factor number one in that perception is your ability to pay for what you buy. A business plan that demonstrates that your business will have the cash flow to honor its obligations can do a lot for you.
A secondary factor is your staying power as a customer. If a supplier thinks it will get a lot of business from you in the future, it’s more likely to give you a good price and extend favorable terms.
For lenders. Starting a new business, or expanding an existing one, may require more money than you can get together on your own. This means turning to an outside source for financing. While you might consider taking on a partner or finding an investor, you’ll most likely go to a bank for a loan. The very first thing that you’ll be asked for is a copy of your business plan.
If you’ve been in business for a while and you need financing to expand into a new market or introduce a new product or service, your business plan will illustrate the successful operations that got you where you are today. That track record provides strong support for the projections you provide regarding your business’s new venture.
If you’re just starting out, you won’t have the benefit of a history of successful operations. In the past, this made banks very hesitant to lend money to unproven businesses. However, bankers are becoming more open to financing startup operations because much of their new business is coming from this business sector. As with an existing business, a business plan is essential to getting this type of financing. It is one of the first things that a potential lender will want to see (along with a list of your personal assets!). A good idea, presented in a carefully drafted business plan, can be a very persuasive tool.
Venture capitalists, prospective partners or shareholders, and even relatives who might loan money or invest in your business will likely want some assurances that they have used their money wisely. A business plan demonstrates how their money will be used, and what they, and the business, can expect in return. If you expect an ongoing need for funding, showing that the business is meeting or exceeding planned goals can help you build the proven track record that might let you borrow under more desirable rates and conditions.
For prospective employees. Portions of a business plan can also serve to introduce prospective employees to your business. Particularly if you intend to hire long-time or high-level employees, you’ll want to present a fair picture of what your business is and what types of work need to be performed. You can also establish expectations regarding income and growth opportunities based on the plan’s projections.