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    14 Replies Latest reply on Apr 20, 2009 5:43 AM by vistasad

    Do Business Plans Really Matter?

    NoBullFunding Scout

      As a banker, most business plans I see are not worth the paper they are printed on. I know, I know. Someone told you that you need a business plan if you want to get a loan. That's simply not the case. Just because you sit down and write down how your business is going to work IN THEORY doesn't mean that bags of money will show up at your doorstep. The vast majority of business plans make me roll my eyes. Just because you think you'll make $100k next year doesn't mean much to me. I don't care that there isn't another store like yours within 100 miles.

      Here is what I care about: Can you prove that you will have the money to pay me back? I don't want to see a financial projection. Anyone can make up numbers. If you can show me that on a historical basis, you earn enough to pay me back, you are good to go.

      Yes, some lenders will want to see your business plan, but without some real income I can guarantee you will turned away.
        • Re: Do Business Plans Really Matter?
          LUCKIEST Guide
          Do Business Plans Really Matter

          You are the banker. As A SCORE Counselor, I have been told REPEATEDLY, that a Business Plan is one of the first things the lender or investor (and the banker) wants to see.

          I also believe that a realistic Bus Plan serves as an assessment tool. As you work your way through the points of the plan, you have to reaffirm the viability of your ideas.

          Yes anybody can put "pie in the sky figures" on paper, it is up to you, the banker to discriminate the good from the bad.

            • Re: Do Business Plans Really Matter?
              NoBullFunding Scout

              Luckiest, in response to your comment that you've been told that a business plan is the first thing a lender wants to see, I think it depends on the situation. A business plan will be more important for a startup than an established business when it comes to a loan application. For example, an 11 year old technology business (such as the one who posted today on another thread) who is need of a loan will rarely be asked for a business plan from their lender when applying for a basic run-of-the-mill line of credit. At this point in their life, the business either demonstrates cash flow or it doesn't.

              I can also tell you that in some banks, a business plan is required because somebody once upon a time decided that it should be part of the application, but the underwriters for the most part disregard them.
              • Re: Do Business Plans Really Matter?
                vistasad Adventurer
                Luckiest this should interest you.
                A few years ago a newly promoted CEO originally from a marketing function was asked by the company to

                prepare a business plan. This for a 10 year old company with a good range of skin care products. He struggled through the exercise with my assistance. The company was looking for a large infustion of funds.

                Finally the owner of the company tore up all the plans and put in her own plan. She made stockists cough up money and provided stocks in lieu. The compan's products rolled merrily after that.
                That's called leveraging.


                • Luckiest
                  MICHAEL75065 Wayfarer
                  So your a score counslor. I went to a score office in Painsville ohio about my business and the counselor I met were a joke. I could done all this on the internet. I wanted tideas on starting a ecommerce business and maybe getting a mini loan if possiable. I wasted my time.

                  What do score actually relly do. What does score rally offer.
                  I know there probably some good counselors and offices and some lousy ones.


                  Disspointed with score in Painesville Ohio
                    • Re: Luckiest
                      consultingbob Wayfarer
                      > Disspointed with score in Painesville Ohio

                      Sadly, I have to agree with you on that one. :(

                      I have met and spoken with many SCORE counselors over the last 15 years. I have yet to meet one that was up to date on current technology and business methods to understand how the new world market operates for self employed contractors and small businesses that specialize in today's newer technologies.

                      Perhaps for small businesses in the traditional "Brick and Mortar" type of situation they might be a good resource, and I'm sure they have done some good in those situations, but for the rest of us, I have not seen any use for them. On this forum especially, in the past 3 days what I have seen is a lot of disrespect, non-answers and a lot of really bad internet etiquette, but not a whole of actual help.

                      Bob Parker
                      Complete Internet Consulting
                  • Re: Do Business Plans Really Matter?

                    You are right. Just writing or having a business plan does not guarantee that someone will give (or loan) you money for or invest in your venture. But every investor and funding source I have worked with over my 26 year business career wants to see the entrepreneurs or business owners business plan as part of their evaluation of the business and the principal(s) involved in the deal. I hear the following statement (or similar) quite often from these investors, the professional advisors that work with them and from funding sources.


                    "Most business plans we see, especially those for start-up businesses or ventures, usually all have one thing in common: they are a good piece of fiction that often has some great ideas but no one really believes in what they read in them."


                    The reason for this?


                    Most business plans are bloated with a not very credible presentation of the business, its revenue model is not fully described or detailed and has information in it that is inappropriate and unnecessary (and in some cases hurts the plan), they often lack the most important things that investors want to know and use unrealistic assumptions and have overly optimistic financial projections. The good business idea(s) or opportunity that may be somewhere in the plan is obscured and buried underneath what people think they need to have in their business plan. That is why even good businesses and opportunities, who have created that type of business plan, fail to attract the interest of investors and funding sources.


                    I'm going to put some feedback here for those reading this post, that were drawn to it by the title, with questions about should they write a business plan or not before they look for money to launch or expand their business and if they do create their business plan, what are some things to be watchful for. Often you may hear about what a business plan consists of. While including the necessary items is very important, you also want to make sure you don't commit any of the following common business plan mistakes:

                    1) Putting it off


                    Don't wait to write a plan until you absolutely have to. Too many entrepreneurs and business owners create business plans only when they have no choice in the matter. They think, "unless the bank or the investors want a plan, there is no need to have a plan". The worst thing you can do is tell a prospective investor "my plans not done but I'll get it to you as soon as I can". That says to them you are not serious about your business and that it must not be a very compelling business or venture if its not worth doing something as essential as having a plan for it.

                    Don't wait to write your plan until you think you'll have enough time. "There's not enough time to create a business plan," people say. "I can't plan. I'm too busy getting things done." The busier you are, the more you need to plan.


                    If you have too many things going on, if the business or venture and getting funding for it is important to you, then you need to re-prioritize to get your business plan done. If you tell a prospective investor "I don't have my business plan ready now to present to you" ... they know they are dealing with a person that lacks focus and perspective on important things that they should have done before they start opening a dialog with investors.


                    2) Treating cash flow lightly


                    Cash flow is more important than sales, profits, or anything else in the business plan, but most people think in terms of profits instead of cash.


                    When you and your friends imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. Entrepreneurs are taught to think of business as sales minus costs and expenses, which equal profits.


                    Unfortunately, we don't spend the profits in a business. We spend cash. So understanding cash flow is critical. Make sure that your financial projections show a clear picture of cash flow and how it supports operations.

                    3) Overemphasizing your "big idea"


                    Business plans don't sell new business ideas to investors. People do.


                    Your business plan, though necessary, is only a way to present information. Investors invest in people, not ideas. Do not lose sight of that fact. Focus on how you and your management team will execute your business plan. Do not fixate on the idea itself.


                    Don't overestimate the importance of the idea, particularly the importance of the uniqueness of the idea. You don't need a great idea to start a business; you need time, money, perseverance, common sense, and so forth. Very few successful businesses are based entirely on new ideas. A new idea is much harder to sell than an existing one, because people don't always understand a new idea and they are often unsure if it will work.

                    4) Fear that you can't put your plan to paper


                    Doing a business plan isn't as hard as you think. You don't have to write a doctoral thesis or a novel. There are good books to help, many advisors you can find online and among SCORE, the SBA and Small Business Development Centers (SBDCs), business schools etc., and there is software available to help you (such as Business Plan Pro, and others).

                    5) Unclear goals & objectives


                    Leave out the vague and the meaningless babble of business phrases (such as "being the best") because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets, and milestones. Then you can follow up. No matter how well thought out or brilliantly presented, it means nothing unless it produces results. Tailor your business plan to its real business purpose.


                    Business plans can be different things: they are often just sales documents to sell an idea for a new business. They can be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or just run a business better. Whatever its purpose, your plan must be clear and concise.

                    6) Being too complex


                    Investors have real concerns about business models (and plans) that have a lot of moving parts. The more complexity, the more potential for a failure to execute, cost overages and many other things that can derail a plan and turn what seemed profitable on paper, into a money-sucking operation that no one is pleased with. Remember, strategy is focus. A priority list with 3-4 items is focus. A priority list with 20 items is something else, certainly not strategic, and rarely if ever effective. The more items on the list, the less the importance of each. So refine your business model, make sure that you can explain it clearly and that your business plan is a concise explanation of how you plan to make money.

                    7) Unrealistic financial projections


                    Quite simply; have projections that are conservative so you can defend them. When in doubt, be less optimistic. Show how there is real money to be made and not "hypothetical" revenue and profits.


                    Again, even the best-written business plans do not always get funding or investor interest. After all bottom line it is about the business, the people involved and their capability that will primarily affect how well the venture is received by investors and funding sources. But if you are going after capital, then doesn't it make sense to make this (the most important document you use with funding sources & investors) the best that it can be? I think so.

                    Dennis Lowery
                    Adducent, Inc.
                    • Re: Do Business Plans Really Matter?
                      Lighthouse24 Ranger

                      Viewpoint 1 (of 2):

                      Business plans DON'T matter all that much for most first-time one-person start-ups. The individual simply doesn't know enough (about anything) to make realistic projections of the future. Granted, he/she can develop a plan with someone who does (SCORE, business consultants, etc.), but why not take a more "agile" approach? Just do it. Launch the business and learn as you go -- seeking out the expertise of others as needed. Lots of very wealthy people did exactly that.

                      Many first-time prospective business owners might respond by saying, "I can't, I don't have the money to just launch a new business." And that's THE problem (if the volume of posts seeking seed capital in this community are any indicator).

                      Here's what I believe to be one of the cold hard facts of life for a potential first-time business owner -- if your great business idea, personal knowledge, skills, experience, judgment, enthusiasm, and powers of persuasion aren't enough to convince your family, friends, neighbors, coworkers, and acquaintances to invest in you, then no business plan you can ever write will be enough to convince a total stranger. Further, if your great business idea, personal knowledge, skills, experience, judgment, enthusiasm, and powers of persuasion aren't compelling enough to impress your family, friends, neighbors, coworkers, and acquaintances -- then they won't impress a highly competitive open marketplace either. The business will fail (whether it was well-planned or not).
                      • Re: Do Business Plans Really Matter?
                        Lighthouse24 Ranger
                        Viewpoint 2 (of 2):

                        Business plans DO matter -- a lot -- when they're used properly.

                        Good business plans are written and refined well in advance of launching a business (not the night before the owner goes to the bank seeking money to start a new business it or save an existing one). Consider this scenario:

                        You (hypothetically) have been my commercial banker since 1996. I enter your office in November, 2005 with a business plan for new venture. I quickly run through the plan and note that in spite of your employer's own projection that the local market will continue to boom well into the foreseeable future, I'm worried that there's a recessionary trend on the horizon that could start to impact me in Year 3. I tell you that if I'm wrong about that, the business will be fine -- but if I'm right, I may need an infusion of cash in late 2008 to complete a key development project that will be in progress at that point.

                        In June 2006 and in June 2007, I drop by with updates and financial statements demonstrating that I did exactly what the plan said I would (actually a little better than planned). In June 2008, I visit again, and demonstrate that I'm still tracking as planned -- and note that the coming 12-month period is where my plan has always indicated that things could get tight.

                        December 1, 2008 I walk into your office and say today's the day -- I'm still right on target, but need that reserve of cash I mentioned to deal with the "worst case" situation my plan outlined 37 months ago.

                        Do I get the money?

                        There are two kinds of bankers/lenders/investors -- one truly understands commerce, and works with local business owners on a daily basis to ensure financial strength and mutual success -- the other gets paid to sit behind a desk and say "yes" or "no."

                        Business owners like me built the fancy building my commercial banker works in, we bought her expensive desk, and we pay her considerable salary. I think she'd darn well better have been spending some of her time getting to know us and our businesses. The business plan is an important tool for enabling that.
                        • Re: Do Business Plans Really Matter?
                          bigcloudmedia Adventurer
                          I think that a business plan matters to the person who made it and it is a matter of perspective. It acts as a way to organize all of the plans for the business into one understandable plan. It is known that most start up businesses don't know their projections and probably just pulled numbers out of their heads and it is their mistake for trying to sell that too you. That should be goals for the business owner.

                          A business plan does not by any means guarantee a bank loan or even a meeting with a banker. All it does is show that the business owner cares enough about the business to try to plan it out right from the start instead of building something out of thin are and picking up the pieces later. I think a well laid business plan does wonders for the business because it organizes the route to take and what still needs to be done.

                          Before going to a banker, I would have some kind of proof that the business that I want him/her to finance is going to return their money and then some. I would include that proof in the business plan presentation but not just present the business plan itself. I wouldn't loan my money to someone who just wrote down what they are going to do either. Not enough exists there to justify the loan.

                          So all that being said, I think that the business plan is essential for the business owner but not neccessarily for the bank. If you have a solid business plan and the financial proof the bank requires, I am sure the loan would come alot easier. Both items need to be there though to prove that you know where you want to take your business, how to get there and that it will give a nice return for the bank.

                          Thanks for the post NoBullFunding. I think alot of us had the idea wrong and I am glad that you cleared it up from a bankers standpoint.


                          Koji Flowers
                          Big Cloud Media
                          "We don't just build websites, we open doors."
                            • Re: Do Business Plans Really Matter?
                              NoBullFunding Scout

                              Great replies all. Lighthouse, as always, is spot on.

                              As I think more about the topic, I realize that my argument is based on the myriad of business plans I have seen by people who have no experience and no money. Perhaps the best way to say is like this: before an entrprenuer goes waltzing into a bank, they need to understand that while it's important to have your ducks in a row...bankers make decisions based on the PAST (ie what's your experience and how much did you make), not what you claim will happen in the future. So...unless you have some outside source of income, some cash stashed away, or you are buying an existing profitable business, you banker will won't be able to finance your brilliant idea.


                            • Re: Do Business Plans Really Matter?
                              DomainDiva Ranger
                              I wrote the first business plan in late 2005. Since then, it has changed dramatically as our milestones and situation(s) changed. Although we will not officiallgy launch unit March 2009 there is already some industry 'gossip' about what we are doing. Being prepared is important and an up to date, coherent and comprehensive business plan that explains EXACTLY what you are doing is very important.

                              Not only do we have technology to show, we have a business plan thats up to date and shows what we have already accomplished, when we will launch and why we don't need an investor. Thats right, we dont NEED an investor because we have plan A (proceeding post launch with no outside money) and plan B (proceeding post launch with outside money). The business plan shows plan B. However since I am the leader I have to know in advance how to proceed without any additional outdside funds...hence plan A. The business plan can always be revised and updated.

                              My business plan does not have any financial reports attached. I have a projected 'extremely conservative' report that is available if the interested party wishes to go further. After doing some research on business plan financial reports I decided that I was not cut out to start an investment relationship by lying and making things up. I tell possible investors these things up front. So far, it has worked.

                              We decided to let the team and the technology speak for themselves. Risky? Yes. Honest? Much better. At least our angel investor thinks so.
                              • Re: Do Business Plans Really Matter?
                                Iwrite Pioneer
                                What if you are not looking for funding? What value does a business plan hold for a business owner? And how true to do people remain to the plan when it comes to the running of their business?


                                I look at the financial aspects of the business plan as only one chapter of the book - I don't mean that it has to be long but that there is more to the business than funding. There are issues that if addressed properly should help a business owner stay on course. How true to the business plan are you really?


                                In the past, I have read the business plans for some of my past clients and was amazed - the business I was dealing with looked nothing like the dream they had put on paper. Gone was the insightfulness, the understand, the passion and direction. It was like seeing your childhood hero no longer in his or her prime, a shell of what you had known.


                                I became jaded about business plans because of this. I know of people who have opened and run successful businesses without a business plan but they have a clear idea of who and what their business is, and fight hard to remain true to that dream.


                                I'm not saying I don't believe in business plans or don't have one, I just think they are useless if you don't have the commitment to stay true to it. I know it can and should change but there are core beliefs that should be reflected in it and how you run your business. That's what I think about business plans but then again, I am the non-business advertising guy.
                                  • Re: Do Business Plans Really Matter?
                                    Lighthouse24 Ranger

                                    As far as my own businesses, I have approached things much like a ship captain or football coach. I begin with a course laid out or a game plan in mind. Sometimes everything clicks and I follow the plan precisely. Sometimes it all goes out the window on the first leg of the voyage or in the first quarter of the game, and then I adapt.

                                    Whether you're trying to bake cookies or win a world war, preparation is usually the key to success. Not a having a viable plan before you start will waste time, resources, and maybe even lives. Yet stubbornly adhering to a bad plan (or one that is longer relevant) is equally wasteful.

                                    I think the discipline to plan and the ability to adapt are both necessary for a business leader (or any leader). The better you are at planning, the less you'll have to adapt. The better you are at adapting, the less you'll have to plan.
                                  • Do Business Plans Really Matter?
                                    vistasad Adventurer
                                    Alot depends on the type of funding agency you are approaching.
                                    Bankers are conservative they would be more interested in the business you have executed and the solididty of that business.
                                    Centre venture funds which take a stake in your enterprise would be willing to take risks which no bank would.

                                    So part of the relevance of your business plan is related to
                                    1 The type of funder you are approaching
                                    2 The business you have executed.
                                    But in general very few funders would bankroll a startup in which none of the partners put in money.
                                    The best of business plans would be viewed with suspicion.