Business Plan
Most business buyers are exposed to a good variety of business plans and executive summaries as they shop for deals through brokers. A good broker will put together a detailed “confidential memorandum” which requires the buyer sign an NDA, as well as a one or two page executive summary or “teaser” which can be sent out to the masses. The summary will have one or two paragraphs about the business and some summary financial information, while the CM will be structured as a typical business plan with some modifications to reflect the sale of the business. The CM can run 50 to 100 pages with complete financial information.
Some CMs are better than others. I have seen some brokers produce listing agreements and poorly organized forms that set forth the basic information of the business but make the buyer work to get the rest of the information. Make no mistake a poorly marketed business can present opportunities that don’t exist with a heavily marketed one – namely less competition. This can be a big deal, especially with companies that aren’t even for sale, which have no buyer competition at all. The bad business plan product may turn everyone off but the deal itself might well be a diamond in the rough. So keep an eye out for good companies with poor broker memos, listings and bad marketing. You may just find an overlooked opportunity in there somewhere.
We can rest assured that there are many different business plan formats that can be followed. These documents are representing the seller with his sale of the business. The buyer similarly needs such a document to present to lenders, investors and other potential partners. The buyer can also use an executive summary as well. In fact I would argue that a good executive summary is every bit as important as the more detailed analysis, and I’ll explain why.
The Importance of An Executive Summary in a LBO
- It is your first pitch and impression to the outside world. So don’t blow it.
- This document can get sent around to virtually anyone so the circulation will be huge
- This document is easy to modify which is critical if your deal changes
- This document can get you in the door of lenders, investors and other networking contacts
- An executive summary will automatically solicit input on the merits of the deal, giving you valuable feedback.
So it is critical to have an executive summary of your deal. Even more important than having a comprehensive memorandum. There are couple of reasons for this. First is that the executive summary takes very little time to prepare compared to the bigger plan. You will find it reasonably efficient to prepare them for a number of deals which you may be negotiating at any one time. You won’t want to prepare 50 page business plans all the time just because you are engaged in negotiations. Second, the executive summary can be expanded and tailored so that it presents a sufficient picture of the deal to obtain feedback from financing sources.
Moreover the larger business plan may be superfluous depending on who you are sending it to. In many cases lenders need a very specific set of numbers or reports for the lending decision that have no resemblance to the components of a business plan. In these cases, such as with a factor, or asset based lender, the business plan may be unnecessary and the decision made very quickly even without it. If the lender needs the blanks filled in and the background of the deal it is usually covered in face to face meetings.
So here is a quick summary of what an executive summary should include to make it one step better and almost like a business plan.
Expanded Executive Summary Guidelines
- Up to ten pages(usually 3-5) to include Summary, Background, Deal Stucture, Proposed Financing Package
- Paragraph 1 – Summary paragraph, why the memo is being written, background of buyer
- Paragraph 2 – description of the target company. Age, what they do, history, summary of financials, employees, ownership,
- Paragraph 3 – summary of transaction, deal structure, terms, copy of LOI,
- Paragraph 4 – proposal to Lenders – amount requested, terms, collateral available.
- Final pages – financials, Balance Sheet, P&L, pro -forma, projections, all for at least three years.
- Other info, bios of buyer, post closing manager bio,
This can be as detailed as you want it but these are the basic components of the summary. It should not be like what you see from the brokers, it needs to be more than one page and should include several pages of narrative and background plus a summary of the financial at the end. So before you start out on a great big business plan consider the shorter format without boiling it down to one page. This can and should be done once the LOI is signed or even before. It shouldn’t take more than a few hours of work. Because it is a short format you should get into the habit of whipping them off in no time for the many deals you .
