Real Life Story: “Don’t take that to the Bank”

This Real Life Story is an extract from Uncle Ralph's, "The Complete Do-It-Yourself Guide to Business Plans".  Read it.

Real Life Story: “Don’t take that to the Bank”

It started with a phone call, “Hi Del, we found you on the Internet”. A week later, I was sitting down with Peter, Paul and Mary to work with them on their start-up Business Plan.

Peter and Paul were two experienced executives in the computer hardware service business and Mary was Paul’s wife. They wanted to quit their current jobs and start their own computer services business that would succeed where their current employers were failing. They had the necessary knowledge, experience and contacts to quickly get up to speed and win business from competitors. (Those are the three pre-requisites I always ask the entrepreneur to check-off before starting.)

But there were two major flaws in their initial plan. First, they had an unnamed additional partner who was currently the Purchasing Agent with a customer of their current employer and he was promising to switch that large contract to their new business. Oops! That would probably be a firing offense as a conflict of interest for the Purchasing Agent and a breach of their own employment and non-compete agreements for Peter and Paul. So I persuaded them to leave the third partner out of the deal, at least until he also had left his current job.

The second major flaw in their plan to attract both suppliers and customers was to offer very generous payment terms. The exact opposite of the often recommended cash management policy of “collect fast and pay slow”, they intended to let their customers pay slow and pay their suppliers fast. They saw it as a key competitive advantage and it would certainly have been attractive for their customers and suppliers, but a disaster for their financing and profitability.

Also not something to take to the bank to generate confidence in their management capabilities and the likely success of their plan. So we reverted to normal industry payment terms and focused instead on leveraging their strengths of market knowledge and technical expertise to attract customers and suppliers. That not only made the plan more presentable, but also reduced their start-up financing requirement from over $100,000 to less than $40,000.

These were valuable changes to their Business Plan resulting from the all-important process of testing strategies and plans to see the real impact on operations and financial results. That is the real value of preparing a Business Plan: arriving at a workable strategy and operating plan for management. Not just a document to submit with a request for financing.

After the revisions, they did succeed in getting financed and two years later the business was growing fast.

(Note: In all these Real life Stories, the actual names and business details have been changed to protect the innocent subjects involved in each story. Their stories are told here only for the purpose of helping other entrepreneurs get better results from their Business Plans.)

Your Uncle Ralph, Del Chatterson

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