The Ernst & Young Business Plan Guide, Third Edition

Chapter Two. Who Reads the Business Plan?

The business plan will be read by people both inside and outside the company. Inside readers will usually be limited to the management team and the board of directors. Outside readers will mostly be those who are sources of funding, although professional advisers will read the plan, and occasionally even a supplier, distributor, or others who have a business interest in the company may want to read it in order to understand how the company runs so he or she can better serve it. For this chapter, however, we will concentrate on those who read the business plan in the context of potentially financing the business.

In general, there are two types of funding sources: lenders and investors. The lenders we are generally referring to are commercial banks, corporate finance companies, and investment bankers.

When lenders consider a loan request, they concentrate on what are sometimes referred to as the “four Cs” of credit: character, cash flow, collateral, and (equity) contribution.

Investors look at many of the same factors, although they often weigh the factors differently and even define them differently. This is because lenders and investors are looking for different things in a business they fund.

Lenders are looking for the ability of a company to repay its debt. No matter how big a hit a company is, a lender usually has only the promise of being rewarded with steady payments of principal and interest. While a borrower may become a better customer ...