Some entrepreneurs may have an innate capability to outperform their rivals, acquire managerial skills, and thus build a flourishing business. But it is difficult for customers (and others) to identify founders with these innate capabilities.2
By enhancing the firm's credibility, the business plan can serve as an effective selling tool with prospective customers and suppliers, as well as investors. Suppliers, for ex-
ample, extend trade credit, which is often an important part of a new firm's finan-
cial plan. A well-prepared business plan may be helpful in gaining a supplier's trust and securing favorable credit terms. Occasionally, a business plan can improve sales prospects. For example, by convincing prospective customers of a firm's potential for longevity, the plan may reassure those customers that the new firm is likely to be around to service a product or to continue as a procurement source.
Almost anyone starting a business faces the task of raising financial resources to supplement personal savings. Unless an entrepreneur has a rich relative or friend who will supply funds, he or she may have to appeal to bankers, individual investors, or venture capitalists. The business plan serves as the entrepreneuris calling card when he or she is approaching these sources of financing.
Both investors and lenders use the business plan to better understand the new venture, the type of product or service it offers, the nature of the market, and the qualifications of the entrepreneur and the management team. A venture capital firm or other sophisticated investors would not consider investing in a new business be-
fore reviewing a properly prepared business plan. And the plan can be extremely helpful in establishing a good relationship for a new firm with a commercial bank.
The significance of the business plan in dealing with outsiders is aptly expressed by Mark Stevens:
Some entrepreneurs may have an innate capability to outperform their rivals, acquire managerial skills, and thus build a flourishing business. But it is difficult for customers (and others) to identify founders with these innate capabilities.2
By enhancing the firm's credibility, the business plan can serve as an effective selling tool with prospective customers and suppliers, as well as investors. Suppliers, for ex-
ample, extend trade credit, which is often an important part of a new firm's finan-
cial plan. A well-prepared business plan may be helpful in gaining a supplier's trust and securing favorable credit terms. Occasionally, a business plan can improve sales prospects. For example, by convincing prospective customers of a firm's potential for longevity, the plan may reassure those customers that the new firm is likely to be around to service a product or to continue as a procurement source.
Almost anyone starting a business faces the task of raising financial resources to supplement personal savings. Unless an entrepreneur has a rich relative or friend who will supply funds, he or she may have to appeal to bankers, individual investors, or venture capitalists. The business plan serves as the entrepreneuris calling card when he or she is approaching these sources of financing.
Both investors and lenders use the business plan to better understand the new venture, the type of product or service it offers, the nature of the market, and the qualifications of the entrepreneur and the management team. A venture capital firm or other sophisticated investors would not consider investing in a new business be-
fore reviewing a properly prepared business plan. And the plan can be extremely helpful in establishing a good relationship for a new firm with a commercial bank.
The significance of the business plan in dealing with outsiders is aptly expressed by Mark Stevens:
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