How to Identify Strengthes & Weaknesses in a Business Plan
People often take conflicting views of business plans. To some, a business plan represents a ticket to funding from venture capitalists. To others, it is what the bank needs to justify loans to a start-up company. Many view it as something to show to new suppliers or executive recruits and then put away. Business owners and managers who see them as tools for planning--for setting objectives and following up--often make the most effective use of the format.
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Face the Music
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Ask yourself if the business plan states major problems and admit that the management team lacks solutions. Does the plan give the company an assessment of the problems and offer a strategy for dealing with them or succeeding in spite of them? Does the plan ignore an industry or regulatory situation that could be detrimental to the business? Does the plan paint a rosy picture of the future without mentioning any problem areas? Honestly addressing problem areas that could affect a company's future constitutes a key part of a good business plan. Avoiding problem areas misses the point.
The Big Idea
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Does the business plan make too much of the new "big idea" behind the company? New ideas are often difficult to understand and require a great deal of explanation. A strong business plan provides the right amount of information in a logical manner and does not rely on hyperbole. Excessive promotional language implies a weak plan that lacks substance. The big idea may be impressive, but the plan needs to translate that into a concrete blueprint for commercial success.
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Know Your Industry
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If a business plan demonstrates a solid understanding of the subject company's industry, that constitutes a plus. The plan should provide an informative overview of the industry and show where the company stands. The management team and advisers should have considerable experience in the industry. By contrast, a weak business plan would attempt to explain how a group with no experience in an industry will enter it and succeed. Such success is possible, but lack of industry experience constitutes a serious deficiency in a business plan.
By the Numbers
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The financial section is where the superior business plan will shine. It constitutes a definite strength to have extensive and detailed financial projections for three to five years (based on realistic assumptions) and give proper attention to cash flow. Growth projections should be positive, but believable. A weak business plan might have an incomplete financial section (e.g., without cash flow projections) and with assumptions that do not add value to the financial projections.
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References
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