How A Business Plan Can Help You Jump-Start The Sale Of Your Business.
Many people recoil from the prospect of preparing a business plan. Yet what better way to accelerate your progress in preparing your business for sale, than formalizing your realistic expectations for future performance. This will provide you a firm foundation and provide prospective buyers with a heightened level of confidence. If your business plan can show improvement in gross margin because of formal systems and processes implemented, even better.
A well established way to prepare a business plan starts with revenue projections. These need to be based on realistic assumptions about the economic environment for the time covered by the plan. The nature of the competition and expectations about success in your marketing systems and processes need to be factored in. If you project an increase in revenue during a declining economy, you need to explain your reasons.
Revenue projections should realistically extend no further than 18 months into the future. Many businesses go out 5 years, and beyond in business plans. That may be useful in some larger organizations as it forces attention on areas like management succession, that might otherwise be missed. Or on long lead items like plant expansion. However, for most businesses, the view beyond 18 months is too fuzzy.
You also need to compare forecast revenue with past revenue for the same calendar period. If your business plan contemplates revenue that will be substantially higher than for same time in the past, you need to have good reasons. Picking numbers out of the air, or because you think it will make your business look more impressive to buyers won't fool anybody.
However, if you have implemented several new marketing processes, and you have already recorded success, you will have a strong case. Or if you have landed several new customers, and their buying patterns have been established. And so on. The key take away point, is that you must be able to explain unusual expectations to someone like your mother or your wife.
It is important to make the supreme effort to be realistic on your revenue forecast. If it is wrong, you have little chance that your business plan will be anything other than an exercise in futility. And wrong means that it is either based on faulty assumptions, or that you have incorrectly interpreted valid assumptions. If you produce a revenue forecast for the plan that when examined in the future will have been within one percent of being correct, that will be pure luck.
As you work on the cost side of the plan, pay attention to the resources and assumptions behind the numbers. If you forecast increased revenue, will you come up against capacity constraints? Remember that it is frequently difficult to add a part of a person. Be careful about how you deal with fractions of people.
If you are expecting to increase your gross profit margin over that experienced in the past, your business plan must include a written description of the plan to get there. If you have been able to validate the efficacy of one or more parts of the plan, be sure to include that. Imagine yourself physically carrying out the necessary steps. That will help you take all the important factors into account.
At some time you will likely need the help of your accountant, or someone familiar with the use of financial spreadsheets such as Excel. Too many people when preparing a business plan delegate too much responsibility to this person. Make this a management driven plan, not an accountant driven plan. Once the numerical part of the plan is complete, review it and analyze it relentlessly. Look for discrepancies. Make sure that the personnel cost corresponds with your head count. Are there corresponding increases in raw material inventory when new products form part of revenue expectations?
Another way of looking at this is that the income statement, balance sheet, and cash flow statement must be consistent. If you expect to increase revenue, have you shown a corresponding increase in accounts receivable? If not, have you explained your proven program for accelerating collections? And if you have shown an increase in accounts receivable, have you discussed where you were going to get the cash to finance this additional working capital? Do you have room in your existing financing facility? Or will you need to negotiate for more capital? Or??
For some people, the numbers are the end product when doing a business plan. For others, and hopefully you will be one of them, they are only a tool, and a convenient way of presenting the creative, constructive thinking that has gone into it. And hopefully you will follow the plan of making the numbers follow and conform to the written plans and assumptions, rather than the other way around.
One last word on the previous subject. Before the advent of spreadsheets like Excel, much greater thought and care went into the assumptions underlying the numbers. The reason was that with hand held calculators, it was many hours, and sometimes days, work to change the numbers, if assumptions were wrong, or not carefully thought out. Now less thought is given, since it is so easy to change the numbers. Pretend that it is still hard, and spend much more of your time getting the assumptions right.
Now back to the reasons for doing your business plan, as you prepare your business for sale. It will provide you with a strong foundation on which to base your expectations. If it is done well, and is credible, it will give prospective sellers a lot of confidence in future prospects for your business. And confidence in future prospects is a critical consideration in a buying decision, and in the amount the buyer will propose to pay.
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