So you finished your business plan and are ready to start shopping for funding. After that long journey of writing a business plan, you have learned everything you need to know about presenting your idea and moving onto the next stage of entrepreneurship. However, a professional business plan is not complete unless you have a confidentiality agreement to go along with it. This may seem like a document that is not necessary as you aren’t even in business yet, but failure to secure confidentiality could result in someone else pursuing your dream.
What is a confidentiality statement?
A confidentiality agreement is exactly what it sounds like. In simple terms, it is a document stating that the person you disclose your business plan to will not disclose any of its contents to anyone outside of the agreement. Confidentiality statements are sometimes referred to as non-disclosure statements and basically work the same way when it comes to a professional business plan. They protect both parties to a business transaction and are common with business plans as well as other business transactions. If you are not familiar with confidentiality agreements, then now is a good time to do so as they will be part of your business throughout its lifetime.
How does it protect you?
Each confidentiality agreement should contain a provision stating that both parties (including you) will not disclose any of the information discussed or contained in the business plan. Each should also contain a damage provision stating what the breaching party would be liable for (usually money damages) in the event of a breach.
Without a confidentiality agreement, writing a business plan is a waste of time as you are basically doing the work for other people who can use your plan without your permission or knowledge (to some extent, not taking into consideration copyright law). With a confidentiality agreement, you will be entitled to some type of compensation in the event of a breach. Of course you will still need to go through legal channels in order to obtain a judgment against the breaching party; however, without the agreement, there is no court in the world that will give you any damages if someone steals your idea.
When do you need one?
A confidentiality statement is good to have for any business plan. Even if you have a well-known business such as a franchise, there are certain things such as financials that you want to make sure stay private. You need to realize that even though you are presenting your business plan to a professional organization (often a publicly traded bank backed by the Small Business Administration), this doesn’t mean that the person working for them is ethical. Many loan officers know people already in business and could easily share your idea with someone with the money and know-how to open an identical business as yours before you even have a chance to realize what is going on. This means that you wasted your time writing a business plan since it did you no good in the long run.
When submitting your business plan to anyone, even to a bank, it is recommended that you have a signed confidentiality agreement with them prior to the actual submission. Without a signed agreement, you will not be protected from any harm caused by a breach of confidentiality. Submitting it simultaneously with a business plan also will not protect you as the person you submit it to could read the business plan without supplying you with a signed agreement. Keep in mind that not everyone is willing to sign a confidentiality agreement so you also need to consider this once you start pitching your professional business plan to investors. If this turns out to the case with the institution you are seeking funding from, you will want to limit your business plan to the basic information that you are willing to share.