1. Ed Perez has always wanted to run his own restaurant. He worked part time in the food service business during high school and college and has worked for a large restaurant chain since graduating from college four years ago. He’s now ready to open a franchised family-style restaurant. However, a large investment is required to get started. Ed has saved some money, but will also have to secure a substantial loan.

Fortunately, Ed’s old college roommate, Joe Dixon, is now a loan officer with the local bank. Besides being a good friend, Joe knows that Ed is a stable, hardworking businessman and an excellent credit risk.

Ed is now meeting with Joe to apply for the loan. After exchanging pleasantries, Joe asks to see Ed’s business plan. In response, Ed tells him all about the idea and shows him the written information from the franchisor, which Joe glances at briefly.

Joe listens politely, leans back in his chair, and says, “Ed, I’ve known you for years. I’m sure this is a great idea, and that you’ll make a terrific restaurateur, but we can’t even begin to consider a loan until we see a fully developed business plan that looks at least five years into the future.”

a. Why is Joe (the bank) insisting that Ed prepare a business plan?