EXTERNAL USES FOR THE PLAN

The business plan is a company’s first-line tool for obtaining funding and other types of
outside support. Some examples are discussed below.

Investment Funds Private equity investors and venture capital firms will ordinarily not consider backing a company that does not have a written plan. Investors are seeking evidence of high growth. In addition, they want to know how they will realize their investment returns, whether through a public offering, sale of the company, or management buyback.

To assess the likelihood of high returns, investors look hard at the following:

•  The track records of the company, the market, and the key executives

•  The feasibility of achieving the forecasts

•  The uniqueness of the product and its technology

•  The quality of the management.

Bank Financing Bankers have traditionally focused on when and how the principal and
interest will be repaid and the availability of collaterial to cover any loan losses. As such, loan
application packages tended to consist of little more than past and current financial statements. However, bankers are putting more emphasis on how a company would survive
possible setbacks. As such many bankers are requiring business plans be included in a loan
applicable package. Also, a high quality business plan can help a company stand out favorably
in today’s intense competition for loan funds.

Strategic Alliances These arrangements covering joint research, product development,
and marketing have become increasingly vital for young, growing companies. The arrangement often includes a combination of financial backing and access to well-established
distribution channels. The joint efforts may last three years or more. Major corporations
invariably want to examine a company’s business plan before committing themselves to such
long-term arrangements.

Mergers and Acquisitions As companies increasingly look to acquisitions as a means of
expansion, and to divestitures as a means of gaining liquidity, business plans become more
necessary. Companies seeking acquisition candidates typically use the candidates' business
plans as one of their first screening tools. Similarly, if the managers of an acquisition candidate
want to stay on after an acquisition, they will probably be extremely interested in the long-term plans of the acquirer.

Customer and Distributor Relationships For many growth companies, obtaining a large
customer or gaining a commitment from a major distributor can be an important milestone.
Large, well-known organizations are often reluctant to enter into arrangements with
companies that are an unknown entity. A convincing business plan can help to dispel doubts.