One thing that many business owners are just starting to wonder about is whether they need a business plan.
The short answer is yes. You need a business plan. At the very least, you need something to guide you as you grow your business.
The real question should be: “What kind of business plan do I need?” The reason is that if you are planning to take out a bank loan or find an investor then your business plan needs to be much more detailed than you are launching.
Business plan if you’re starting up
Bootstrapping refers to funding a business over time by the amount of money collected from the business. You can also accumulate some of your own money to get started.
This is not the same as using a loan for which you are bearing a business debt. It’s also not the same as looking for investors where you’re using someone else’s money.
Even though it’s your money, you still need a business plan. Otherwise, you risk not profiting from your investment. The difference is that your business plan may not need detailed and in-depth because the bank does not require your certain information.
On the other hand, this is a relief because you may not need to dig too much data. On the other hand, you also don’t really have the format to get started, which is why many startup owners make the mistake of ignoring this section. Or, since there is no format when you start, business owners will be overwhelmed when trying to create a more traditional business plan when it may not be really necessary.
At the very least, you need to find the answers to some of the following questions:
How will this business actually make money?
What is a marketing plan for your business?
What are operating costs?
What are your target revenue goals and when do you plan to achieve them?
How are businesses organized?
Even if you’re not necessarily looking for potential sources of funding, making a business plan will help you figure out the structure, marketing, and some financial resources.
Business plan if you want to take out a business loan
Some businesses see debt as a form of capital. It is a very common practice between companies and small business owners who can also take advantage of it.
If you are applying for a business loan through a traditional lender (i.e. a bank), you will need to create a fairly intensive business plan to break down all the financial funds. They will also want to see how the business currently operates financially.
Unfortunately, since the Great Recession, sometimes it is a little difficult to try to borrow business loans from a traditional lender. You may have the best business plan they’ve ever seen, but according to a report released by Harvard Business School, many business owners complain that traditional banks simply don’t lend to small businesses unless they’ve made money. Many people are also being negatively affected by their personal credit scores.
That’s where alternative lenders have come into play. These companies are run by private companies and are a little more tolerant of lending money. While you may not need an in-depth formal business plan and they won’t consider your credit score, they’ll want to see what industry you work in and the current cash flow in your business.
Business plan if you want investors
A business plan is especially important if you want to raise capital from investors. You have to convince these people to take calculated risks by handing you their hard-earned money.
With investors, you will need to explain where the money will be used and how to make a profit with as much detail as possible. In other words, when you want an investor, you can’t just combine random ideas together. The business and its processes need to be clearly detailed in order to be taken seriously.
While every business needs a business plan, the reality is that a start-up small business owner may not need the same plan as a startup looking to raise capital from investors. No matter what type of business you have and how it is funded, even the most basic business plan can help you identify some of the key factors that lead to your success.