Do you need a business plan before you start a business? Not always, but there are times when you do. Here are three reasons you need a business plan.
Some people start businesses without a plan. And some of them make money. But a lot of them fail. So, the first reason why you need a business plan is to improve your chance of business success.
The three main reasons why you need a business plan are if you need outside funding, to find possible problems with your business, and to plan for growth. I cover each of these three reasons in depth n this post.
1 – To Get Outside Funding
If you need investors of any kind to start your business, you need a business plan. And your business plan has to be complete and good.
Getting money to start a business is one of the hardest things you’re ever going to do. In fact, many people never find outside funding for their business.
If you don’t find outside funding for your business, you either have to give up or figure out how to start it without outside money.
The bad thing about outside money is it costs you something. If you’re lucky, outside money only costs you more money. But most outside money costs a percentage of your business. In other words, you give up equity for money.
You have to decide if giving equity is the best plan for your business. But you have no chance of getting any type of offer without a great business plan.
The business plan has to show in detail how the business makes money. And your plan has to convince potential investors their money is safe. You’re not going to get investors like Nicholas Bredimus or Warren Buffett to invest in your business if you don’t have a plan
2 – To Find Possible Problems with Your Business
Even if you’re not looking for outside money to start your business, a business plan can help.
The main purpose of a business plan is to make a map for your business. A plan puts all of your thoughts and ideas and plans on paper. And this is valuable in many ways.
Business plans show what you’re selling, how you’re selling it, and how you’re making money. But a great business plan also shows you potential problem areas in your business.
It’s always better to find a problem before you start than once you’re in business. You won’t find every problem, but every potential problem you identify can save your business later.
It’s painful to think about things that can go wrong with your business. But now is the time to plan for the worst. If something can possibly go wrong, write it down. And then make a plan to overcome the problem.
What happens to your business if you die? What happens if a tornado levels your business headquarters? Do you have a plan if you’re sick and have to stay away from the business for a month, or a year?
Use your business plan to prepare for the worst. And when something bad happens, you might have a plan to deal with it.
3 – To Plan for Growth
Most businesses fail because they don’t make enough money. But, did you know some businesses fail because they grow too fast?
You might find it odd a business can fail because it grows too fast, but it’s not uncommon. And the best way to avoid failing because of fast growth is to have a good plan.
Every good business plan has scenarios, including the best case scenario. And in your best-case scenario section, you have to address how you’re going to handle fast growth.
How do you hire and manage hundreds of people if you need to? Do you have experience running a big company, or do you need to bring someone in to run the company later?
If you don’t have a plan, growth can kill your business. And don’t make the mistake of thinking you can solve all of the growth problems because you’re making more money. If you don’t have a plan, someone else is probably going to end up with your company.
But, if you find outside money for your business using your plan, some organizations help you with growth. But these organizations almost always get equity, so be careful what you sign up for.
You can read more about having an end goal in mind for your business and how to achieve that goal in this article.
Conclusion
If you need outside funding for your business, you don’t have any choice. You have to create a detailed business plan. But even if you’re not looking for outside investment money, you still might need a business plan.
A good business plan shows you possible issues before you start your business. Identifying problems now is valuable. Problems you miss can kill your business later.
Finally, a good business plan helps you identify how your business can grow. Growth is good in a business, but if you don’t know how to handle the growth it’s painful.
