Do VCs Look at Your Business Plan? If Not, Do You Need a Business Plan? SCORE Counselors Respond

numerals and finance
Is it true, as the recent article by Brent Bowers in the New York Times suggests, that Investors Pay Business Plans Little Heed? And if it is true, does the entrepreneur or small business owner still need a business plan?

What do SCORE volunteers, who counsel small business owners and entrepreneurs in 370 chapters all over the country, think of this article ?   We asked several and here are the responses:

Ken Larson

Ken Larson

Ken Larson, SCORE Counselor and blogger (and fisherman) http://www.smalltofeds.blogspot.com:

The business plan is just as much for the business planner as for the investor.

Completing the process will convince the most important individual that a viable business vision exists for the enterprise.  That individual is you.

When you have completed your business plan, you will be able to pitch it with confidence to people who can help you.  It will be your road map to your future that you can slide across the table to a banker, partner or investor.  You can address it with verve because you own it by having done it.

These links provide free tools and examples on business planning.

http://www.va-interactive.com/score/businessplan/businessplan.html
http://www.bplans.com/sample_business_plans/all_plans.cfm

You can also hook up to a free counselor to help you with that plan either in person or by email at this link: http://www.score.org

Larry Lakin

Larry Lakin

Larry Lakin, SCORE Chicago chair and SCORE counselor:

A brief (10 page) business plan is more for the owner than the venture capitalist. It clearly defines the business concept and confirms the financial feasibility of the idea. It will help the owner focus on what is important when explaining the idea and concept to the venture capitalist and increases their chance for funding.

Bob Paul, SCORE Counselor and teacher of Business Plan Workshops:

The author of the article (and possibly the conductors of the research) seem to be trying to create a controversy where none exists.

Bob Paul

Bob Paul

So what if VC’s don’t read an entire business plan? Whether they read it or not does not “fly in the face of the conventional wisdom that writing a business plan is one of the first and most essential tasks an entrepreneur should undertake.” It simply means that the business plan is not the preferred format for the VC to receive information.

The business plan plays a key role in:

  1. Identifying the market opportunities and risks
  2. Evaluating competition
  3. Helping launch the business and generate the “strong cash flow and sales that increased 15 percent last year to $4.5 million and are steady this year”
  4. Providing the information that is included in the  “PowerPoint slides, white board presentations or ‘somebody just talking’.”  Information such as
    • Describing the products and services
    • Describing the target market
    • Identifying the environmental opportunities and threats
    • Describing current operational strengths and successes
    • Describing the amount of cash infusion required and the use of the cash

What is important for entrepreneurs is to realize that the business plan should be a roadmap for their own efforts, not a sales pitch for lenders or investors. I make this point regularly at my BP workshops.

Don Crossett

Don Crossett

Don Crossett, SCORE Chicago counselor and ex-chair of SCORE Chicago:

I agree with Bob Paul, above.  I would like to see how that survey was constructed and just what the VCs were asked.  I was with a company financed by a VC for some 12 years, on the board with him and others where I was CFO. Clearly he would have answered the questions differently.

Larry Pelka

Larry Pelka

Larry Pelka, SCORE Chicago counselor and another ex-chair of the chapter:

Without repeating Bob’s good advice, I’d like to add that lenders really do like to see a business plan, especially for newer businesses.  They don’t have a lot of time to review disparate data, and a good business plan lays out what the borrower feels is important.  It doesn’t take a long time to get a reasonable view of the venture.  Many of these lenders submit the application to the SBA and our local SBA demands a business plan.

Therefore, lots of reasons to submit a business plan.

Mary McCarthy, chapter chair, Columbus, OH

My concern after reading the article is that individuals attempting to start a business will use this as a reason to skip the business plan writing process.  The most important reason to write a business plan is to research, plan and analyze how best to develop, start and manage your business.  If you skip this step how do you know where you want to go?

While VC’s are not interested in a business plan, banks are.  They also do not tend to read the business plan but they want to know you went through the process and have defined your concept, customers and competition.  By the time a business owner is reaching out to Venture Capitalist for investment they have already started their business and are generating revenue and cash flow.  That means they should not be writing a business plan for the VC’s, it should have been created when they first decided to start the business.

Where do you stand on the business plan controversy? Please leave a comment.

– Peg Corwin

Check SCORE Chicago’s Business Plan links
Register for SCORE Chicago’s Business Plan workshops

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