Why Your Startup Needs A Business Plan?
Starting a company from scratch is a daunting proposition. It’s even more daunting to try and start one without a solid business plan. The idea behind a business plan is simple – to set out, in concrete terms, what your business looks like (how many employees? Is it an LLC or a sole proprietorship? How are you planning to make money and how much do you think you’ll be able to make?); what it’s going to make, sell or provide (Is this a brick-and-mortar business, or an online company? What kinds of goods and services does it offer?); and why your investors and customers should be interested in putting money into it (How are you going to make money off your business? How are your investors going to make money? What happens if you go bankrupt?)
Although there are many things about a business plan that make it an essential part of your startup project, the three main reasons your company needs a business plan are outlined in this article. A business plan gives you a roadmap; it establishes credibility with investors; and it helps keep finances in balance. In this article, we’ll talk about the easy one-two-three of a business plan. Specifically, we’ll discuss the when, why, and how of a business plan, explaining when you need one, why you need one, and how a business plan keeps your startup on track financially.
One: When Your Business Needs a Roadmap
First, what does it meant to say a business plan gives you a roadmap? It’s simple. How are you going to know where you need to go if you don’t have any kind of a map showing you how to get there? Writing a manageable, solid, detailed business plan establishes that “map” and keeps your startup moving forward, taking it from a good idea to a solid reality. You will need to establish the amount initial capital outlay (how much will it cost to fund my business?) and delegate it amongst your startup costs. For example, a business plan for a brick-and-mortar bakery might put 15% of its budget towards equipment and 5% towards rent for a total allocation of 20%, while a business plan for an online store might need to put only 5% total of its budget towards the same costs (since separately budgeted amounts for rent, decorations, furnishings and maintenance bills are not necessarily part of an online enterprise), leaving a much larger percentage of the budget for advertising or other considerations.
Two: Why A Business Plan Lends Credibility
A business plan is essential to establishing credibility with investors. How can you expect an investor to put money into a startup company that doesn’t have any clearly outlined goals for success or benchmarks to demonstrate progress towards those goals? It’s very unlikely that any investor would want to put money down into a company that cannot show where it intends to go or how it intends to get there. Being able to show an investor exactly where their money is going leaves much less room for doubt by lowering the perceived risk of investment. If you have an investor who proposes to put a certain dollar amount in your startup, and your business plan shows the investor dollar-by-dollar how the money is being used, you are more likely to be able to attract more investors. This ensures you are able to move forward quickly and start building a business off your startup concept without running into large amounts of unnecessary debt or driving away clients who might want to invest in expansion or other needs for your business in the future.
Three: How A Business Plan Keeps Your Startup Financially Fit
Finally, a business plan helps keep finances in check. Without a business plan that shows, among other things, how much money your startup is going to need versus how much you expect to make; how much money you can afford to spend before you need to borrow more from your investors; and how you are going to pay back your investors the money they loaned you to start your company, how are you going to ensure that your startup company keeps to its financial goals and doesn’t spend itself into more debt that you can afford to repay? Putting money into a startup is a risky proposition for any investor. Odds are, they are going to demand to see your business plan before they will even consider putting money on the table. Investors contribute capital to a business because they want to make money. Without a business plan demonstrating some kind of likely return on their investment, most likely the money that could have gone into your business will go towards another startup with a concrete “blueprint” in the form of a well-organized, easily understood business plan.
Wrapping Up: Remember the When, Why, and How
Simply put, it’s smart business to have a business plan. Without a plan showing how much money you need, where you need to allocate the money you collect, and how you are going to pay back the investors who put capital into your business, it’s highly unlikely that you’ll be able to make your startup idea move from the concept stage to an established reality.
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