EVALUATION


When potential lenders or investors review a business plan, they are keenly aware of the risk/return tradeoff: the greater the risk involved in the venture, the greater the return demanded. Potential lenders and investors are keenly aware of the following twelve factors as they review business plans. How well does your plan score?


  1.     My plan describes a marketable idea.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Hypothetical Firm purchase
customers that orders in hand
exist only on from customers.
paper.  

Logic: Lenders and investors want to see proof that customers want your product or service and are willing to buy it for a price at which you can make a profit. The more tangible evidence you offer of this claim, the higher your score.

  1. My plan shows good profit potential in a short period of time.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Annual rate Annual rate
of return of of return of
10% or more. 50% or more.

Logic: Because new business ventures are so risky, they are expected to earn a high return--25% annually, at a minimum. The higher the rate of return you can offer investors and the faster you can produce it, the higher your score.

  1. My plan targets a clearly defined market with enough size and purchasing power to produce a profit.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

A small, specialty A large market
market with little with high growth
or no growth potential. potential.

Logic: Lenders and investors look for businesses whose target markets are clearly defined. They also prefer large markets with high growth potential. They avoid businesses that attempt to be "everything to everybody."

  1. My plan explains clearly the "competitive edge" my product or service has over rivals.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

My "me-too" My product
product or or service is no better
service is so than the competition's.
unique that it  
is proprietary.  

Logic: One key to success is having a product or service that truly is unique, offering customers something that the competition does not. Lenders and investors look for clear evidence of a competitive edge.

  1. My plan shows my company's ability to control both the delivery and the quality of the product or service.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Total dependence Complete in-house
on outside contractors control of all
and a mercenary sales resources needed to
force to make and distribute the product
service. product/service.

Logic: Dependence on outside contractors and sales representatives is a potential weakness--especially when the quality of delivery, installation, and service of the product is a key factor.

  1. My plan shows that managers and employees have the skills and the experience to make the company a success.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Managers have never All managers
operated a business and employees
of their own before are experienced
and employees are in this business.
inexperienced.

Logic: Lenders and investors don't put their money into businesses; they put it into people. Skilled, experienced managers and employees can make a business work even when resources are stretched thin and conditions are tough.

  1. My business idea is not overly complex.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

A large number of One--or just a
complex products few--products
or services sold. or services sold.
to customers who to customers who
must be educated understand their
about their benefits. benefits.

Logic: Most successful companies start with just one product or service--or a few, at most. Trying to do too much too fast--and having to educate the consumer about a product's or service's benefits--can push a company under before it's out of the blocks.

  1. My plan shows that I've made a personal investment in this business venture.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Entrepreneur has Entrepreneur
put up "sweat has almost all
equity" only and personal assets
refuses to risk at stake.
any personal assets.  

Logic: If you don't believe in your own venture enough to invest at least some of your own money in it, how can you expect others to? "Sweat equity"--unpaid personal time and hard work--can be important, but lenders and investors like to see an entrepreneur with an important financial stake in the business. It's a tremendous source of motivation.

  1. My product or service offers customers a long-term benefit.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

Product or service Product or
could be potentially service is good
dangerous to the world. for the world.

Logic: Customers--and therefore lenders and investors--are more sensitive to products or services that have the potential to damage the environment or to harm people. Does your product or service offer a way to make the world a better place? Have you considered the environmental implications of its packaging and disposal?

  1. My plan lays out a clear, well-conceived, workable strategy for getting this business up and running.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

No real strategy A well-designed
exists--except in my clearly formulated
head. No time to put business strategy
everything down in exists.
writing ... I know  
it'll work!  

Logic: Nothing scares off lenders and investors faster than an entrepreneur who has no time to prepare a business plan that lays out a clearly defined, workable business strategy. Preparing a plan is an essential ingredient in making a new business venture work. There are no shortcuts!

  1. My plan contains realistic financial projections covering most likely, pessimistic, and optimistic scenarios.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

No financial Complete financial
projections or projections (including
only "best-case" cash flows) based on
projections clearly identified,
included. reasonable assumptions.

Logic: Potential lenders and investors want to be sure that the "dollars and cents" of the deal make sense, and that's why realistic projections are important. Most entrepreneurs underestimate the amount of money needed for startup. Don't get caught short!

  1. My plan communicates my vision for the business and why it will succeed to potential lenders and investors in a clear, concise fashion.


        1 ------------------------------------------------------- 5 -------------------------------------------------------- 10

My written plan is My written
stained with coffee plan is
rings, but, after all, polished and
it's content that professional, and
really counts. My idea so is my oral
speaks for itself. presentation.

Logic: Don't fool yourself. You must sell your idea on paper before you have a chance to sell it in person. Lenders and investors formulate opinions about entrepreneurs and their business ventures based on first impressions, which often come on paper in the form of a business plan.

Scoring:

How did you do? Use these scoring guidelines to see if your plan is likely to win financing or if you need to "go back to the drawing board."

POINTS COMMENTS
108 - 120 The "gold" standard. Your plan stands a good chance
  of getting funded.

96 - 107 The "silver" standard. Your plan needs some
  polishing, but you'll likely be able to attract some
  financing (though maybe not all you seek).

72 - 95 The "bronze" standard. There is a possibility your
  plan will get funded, but it will be difficult to find a
  source.

71 and below "Back to the drawing board." Funding is very unlikely.
     You've got a lot of work to do!
         



Source: Adapted from Bruce J. Blechman, "Go For The Gold," Entrepreneur, April 1993, pp. 20-22.




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