Business Plans: SOP for M&As
A written business plan is the first thing that a prospective buyer will want a seller to produce—if not at the first meeting, certainly by the time that a letter of intent has been drafted and due diligence is about to begin. Unless the acquiring company intends to self-fund the purchase, the buyer will have to arrange a loan from a bank or another source of capital. As every printer who has ever dealt with a lender knows, the loan won’t happen without the assurance and justification that only the borrower’s written business plan can provide.
It’s sometimes objected that the industry is moving too fast or too unpredictably for the three-year time frame that most business plans are built upon. These days, who can see clearly that far ahead? This, in my opinion, is a pretty weak excuse for not having a business plan. Nobody is clairvoyant, but a good business plan is like a compass in a fog: it always keeps you heading in the right direction. You can update it—I recommend doing this quarterly—to adjust for changed circumstances and new opportunities.
If your M&A ambition is to grow by purchasing other companies, your business plan should include either a list of acquisition targets or a detailed profile of the kinds of companies that would be a good fit. A seller’s plan may include the assumption that you will remain with the company post-sale in a management role for a certain number of years; or that you simply will retire from the business after an orderly transition. In both cases, carefully constructed financial projections are a must. Engage your controller or CFO, your sales director, your plant manager, and other key personnel in the plan-writing process so that the final document reflects the wisdom of all of these stakeholders.