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Writing a Business Plan

2.8.13- This month Wes Pennington of Frazier & Deeter’s Business Valuations Group is starting a a blog series regarding working with private equity investors. His first blog looks at writing a business plan.

So you think you might want to sell your company to a private equity group (“PEG”)?    PEGs typically have very clear ideas regarding what they seek from target companies, and their perspective may not be completely aligned with your own. Understanding the private investor’s approach is critical to arriving at a deal that achieves your objectives.

This blog series examines best practices for CEOs and CFOs who are considering a private equity transaction, culled from working with hundreds of transactions across all industries.  Watch this space for topics like how to reduce financing costs, managing risk and forecasting cash.

Our first topic in our series about working with a Private Equity Group is The Dos and Don’ts of an Effective Business Plan.  Here are nine tips you can use now to avoid challenges as you progress with your private equity investors:

  1. Forecast cash.  The PEG’s most requested supplement to a Business Plan is a cash flow forecast.  The “gold standard” is a 13 week rolling cash flow in detail combined with long-term forecast describing your major liquidity events (capital for growth, re-finance, acquisition, new equipment, etc.).
  2. Define your synergies.  PEGs  favor  “bolt-on” acquisitions which strategically fit within their current portfolios.  Identify those unique elements of your business that might complement a larger company, such as unusual manufacturing process, customer relationship, design patent, etc.
  3. Know your wish list. If the business had $X in available cash, what would you do with it?  Expand your plant, buy new equipment, or invest in technology?  This helps both parties focus on priorities.
  4. Have a crisp statement of your strategy.  Can you grow the top line?  How?  By filling market voids, providing better service?  Describe what you see and how you will accomplish your strategy.
  5. Be ready to address volatility.  Experts predict that certain material and energy costs will remain volatile, some extremely so.   Can you pass these costs along, absorb them, or do you have a hedging program? Know your plan ahead of time.
  6. Are all related party transactions identified clearly?  Substantially all middle market businesses have transactions with the owners, which we term “related party.”  Such transactions should be highlighted, along with the plan of unwinding them in event of a sale.  A PEG does not like to hear to you cannot unwind a building lease because it will trigger an unwanted tax gain.
  7. Understand key risks, and have a plan to address them.  For example, a current hot topic is “conflict minerals,” which can be found in many unlikely imported products.  Do you have a strategy to deal with key risks?
  8. Write your plan in plain English.  Refrain from Annual Report language, and consider more numbers with fewer words.  PEG will ask questions where more information is needed. 
  9. Have a non-disclosure agreement. This critical document should accompany the Business Plan when it leaves the company.  Your Plan will likely contain confidential information, and an NDA provides some insurance against unauthorized use of this information.

Selling to - or working with - a Private Equity Group can be an excellent move for many businesses. Keeping in mind the basics above will help you successfully navigate the private equity world.

Wes Pennington is one of the leaders of Frazier & Deeter’s Forensic Accounting Practice.  He has assisted numerous sellers and financial buyers with developing business plans and marketing documents, strategy, structure, valuation, and financial due diligence.  In a prior career situation, Wes was one of the leaders for the in-house M&A group of a Fortune 1000 company.  A specialty is distressed/bankruptcy acquisitions.   He is a certified public accountant who is accredited in business valuation, as well as a certified fraud examiner (CFE), certified turnaround professional (CTP), and certified insolvency & restructuring advisor (“CIRA”).

 Your individual experiences, comments, and questions are always welcome.  Please email  


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