See Scope and Value of the Business Plan Page 2 of 13 How do Potential Lenders

See scope and value of the business plan page 2 of 13

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[See Scope and Value of the Business Plan, Page 2 of 13] How do Potential Lenders and Investors Evaluate the Plan There are a number of computer-generated software packages or samples on the Internet that are available to assist the entrepreneur in preparing a business plan. These sources, however, should be used only to assist in its preparation, since the business plan should address the needs of all the potential readers or evaluators and should reflect the strengths of management and personnel, the product or service, and available resources. There are many different ways to present a quality business plan and thus any attempt to imitate or fit your strategy and objectives into a cookie- cutter approach could have very negative results. The plan needs to focus on the above-mentioned factors and should ultimately consider its purpose of use. It is conceivable that the entrepreneur will prepare a first draft of the business plan from his or her own personal viewpoint without consideration of the constituencies that will ultimately read and evaluate the plan's feasibility. As the entrepreneur becomes aware of who will read the plan, appropriate changes will be necessary. Customers may also want to review the plan before buying a product that may require significant long-term commitment, such as a high- technology telecommunications system. In both cases the business plan should consider the needs of these constituencies, who may pay more attention to the experience of the entrepreneur(s) and their projection of the marketplace. Another group that may evaluate the plan is the potential suppliers of capital. These lenders or investors will likely vary in terms of their needs and requirements in the business plan. For example, lenders are primarily interested in the ability of the new venture to pay back the debt including interest within a designated period of time. Banks want facts with an objective analysis of the business opportunity and all the potential risks inherent in the new venture. Investors, particularly venture capitalists, have different needs since they are providing large sums of capital for ownership (equity) and the expected cashing out within five to seven years. Investors often place more emphasis on the entrepreneur's character than lenders
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F0092 The Business Plan *Property of STI Page 6 of 19 Information Needs Pages 4-6 of 13 Technopreneurship The Business Plan * Property of STI Page 4 of 13 Information Needs Figure 7.2 An Upside-Down Pyramid Approach to Gathering Market Information do, and often spend much time conducting background checks. This is important not only from a financial perspective but also because the venture capitalist will play an important role in the actual management of the business. Hence, investors want to make sure that the entrepreneur is compliant and willing to accept this involvement. These investors will also demand high rates of return and will thus focus on the market and financial projections during this critical five- to seven-year period.
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