How Do Potential Lenders And Investors Evaluate The Plan?

Evaluation the Plan:


Because the business plan should address the needs of all the potential evaluators, software packages and Internet samples should be used only to assist in preparation. As the entrepreneur becomes aware of who will read the plan, changes will be necessary. Suppliers may want to see a business plan before signing a contract to supply products or services. Customers may also want to review the plan before buying the product. The business plan should consider the needs of these constituencies.
Potential suppliers of capital will vary in their needs and requirements in the business plan. Lenders are primarily interested in the ability of the new venture to pay back the debt and focus on the four C's of credit:

1. The entrepreneur's credit history or character.
2. Their ability to meet debt and interest payments (cash flow.)
3. The collateral or tangible assets being secured.
4. Equity contribution or the amount of personal equity that has been invested by the
entrepreneur.

Investors provide large sums of capital for ownership (equity) and expect to cash out within 5 to 7 years. They will often place more emphasis on the entrepreneur's character than lenders. The venture capitalist will play an important role in management of the business and wants the entrepreneurs to be pliable 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. If the entrepreneur does not consider the needs of these sources, the plan may be an internalized document without consideration of the feasibility of meeting market goals. Most external advisors and potential investors are bound by a professional code of ethics regarding disclosure.