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Rx for Business Start Ups: An Effective Business Plan That Includes Due Diligence
It is said that a business without a plan is like a ship without a rudder...it runs in circles, going nowhere, until it exhausts its fuel supply. In the case of a business the fuel is cash.
One of the most often overlooked steps in buying or expanding a business is taking the time to write an effective business plan and performing adequate due diligence. Often when purchasing a small business, the reason given often includes "I know in my heart that this business can't fail" and "I don't see the need to hire a consultant to investigate this business or write a plan, besides I need the money to start the business".
The truth is that investing in an independent team of seasoned executives or professionals is money well spent and should be part of every business venture as it establishes a sound direction of where you want to go and how you intend to get there, as well as identifying potential obstacles or factors associated with overall business climate, competition, your prospective consumers, financing, marketing, etc. Adequate due diligence will identify pitfalls to avoid, shortfalls in the business, whether the business is overpriced or a bargain, as well as potential legal issues or entanglements.
These are just some of the reasons for a business acquisition or venture to develop a sound business plan that includes adequate due diligence and the help of a professional:
During my career I have witnessed business failures ranging from $60,000 to $35 Million. In each case there was either no business plan, or the plan was faulty, and often due diligence was absent or defective. The period of time it took for these business to totally fail ranged from 6 months to less than 2 years.
A SUCCESSFUL ACQUISITION
One extremely successful business acquisition was when a small group of experienced executives decided that market conditions were right for them to purchase waterfront property that included a marina for pleasure boats. The first thing they did was retain an experienced and independent business management advisor to assist them with their preliminary business plan. Once they determined the feasibility to be sound, they secured a soft commitment from their financing sources and sought a likely target, executed letters of intent subject to performance of due diligence, and once complete integrated this into their business plan, secured a hard financing commitment, and completed the acquisition. The venture was a success from the start and they eventually sold the business for several times their cost.
COMPONENTS OF A SUCCESSFUL BUSINESS PLAN
SUMMARY AND CONCLUSION
In any business climate, especially that in which we are now entrenched, a sound business plan combined with a comprehensive due diligence review is not only vital, it is absolutely necessary if a new business venture is to have a chance of success. Is this to say that every business that has bypassed this step has failed, certainly not; however if you look around, whether it be Wall Street or Main Street, most businesses that fail never planned to fail, they just did not plan. Given the state of the economy at this time, overlooking the investment of time, resources and effort of developing a sound and effective business plan combined with strategic due diligence is simply not an option. Whatever the cost, this needs to be factored into your initial capital outlay.
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