Common knowledge suggests startups and existing companies need a business plan.
To achieve goals, business plans are critical for mapping out a path. Moreover, to raise capital, a sound business plan is critical. Whether seeking a bank loan or angel investor capital, a formal business plan is a prerequisite.
Yet, there are investors that do not need a business plan. Rather, these investors prefer slide presentation or a comprehensive Executive Summary. Even so, is a business plan needed? With resounding affirmation, for institutional lenders, a business plan remains the rule.
Nonetheless, a private equity investor is less inclined to receive a formal business plan. This investor is among the top one-percent of angel investors or venture capitalists. Because this investor receives many investment submissions, there is little time to read lengthy formal business plans. More important, this one-percent investor or venture capitalist focuses on investments potentially worth millions of dollars; i.e. Facebook or Twitter, companies that have massive potential. For such as these, creating financial projections or analyzing the current marketplace are less important.
Another reason, for creating a formal business plan, is the knowledge that comes out of planning. The business plan process forces one to make decisions (about the business). For instance, penning a marketing plan forces one to decide and employ specific marketing tactics; as in name customer segments, find strength(s) and weakness(es) of competitors. Still, in a study of small business economies, the U.S. Small Business Administration found a correlation between business success and creation of a formal business plan. Furthermore, the successful execution of a business plan need discuss financial fundamentals-to include long-term insurance protections; i.e. key employee and group benefits, annuity and investment vehicles. Among potential investors, financial conversation and foresight is favorable and conducive for business success.
In the end, when investors show a need for less information, these same investors are not suggesting a formal business plan is obsolete. Rather, investors prefer business venture communicate its concept via another format; i.e. a slide presentation or detailed Executive Summary. More important, this concept need include sound financial planning.