5 Reasons You Need a Business Plan

Guest post by Dave Lavinsky

If you’re interested in starting or growing a company, you need a business plan. Your business plan can serve one of multiple purposes as follows.

1. Business Plans Help Raise Funding

If you are seeking equity capital, typically from angel investors or venture capitalists, or if you desire a bank loan, you need a business plan. Sophisticated investors and lenders will review your plan and use it as a key factor in determining whether or not to fund you.

2. Business Plans Determine How Much Funding to Raise

A key part of your business plan is your financial projections. These projections include your income statement, balance sheet and cash flow statement. In developing your financial projections, you determine precisely how much capital you need to execute on your opportunity. This ensures you raise the appropriate amount of external funding. If you raise too little, you will run out of cash. If you raise too much, you will pay more than necessary in terms of equity issued and/or interest payments.

3. Business Plans Assess the Viability of Your Business

Particularly when you consider launching a business, you may have doubts as to its viability. The process of developing your business plan helps answer these doubts. For instance, when conducting your competitive analysis, it becomes apparent whether a competitive gap exists for you to fill. Likewise, your industry research shows whether the market is big enough, and whether trends support launching your business or not.

If you are seeking to grow your business, including launching new initiatives, the research you conduct while developing your plan is equally helpful in determining viability.

4. Business Plans Set Your Goals

Baseball player Yogi Berra once said, “If you don’t know where you’re going, you probably won’t get there.” This is incredibly true in business; if you don’t set precise goals with regards to where you’d like your business to go, you’ll never achieve the success you want.

In your business plan, you set your annual, five-year and/or exit goals. You draw that line in the sand regarding what you’d like your business to achieve.

5. Business Plans Lay Out Your Action Plan

While knowing where you want to go is critical, it’s equally if not more crucial to determine how you will get there.

This question is also answered in your business plan. For example, in your plan’s marketing section, you’ll determine and detail the promotional strategies you’ll use to get new customers. Likewise, in your management team section, you will document who you must hire to properly execute on your opportunity.

Launching and growing businesses is hard work. Arm yourself with a business plan that clearly delineates where your business is going and how it will get there. Then use your plan as a roadmap to follow in reaching your destination, and to influence others, from investors to advisors to employees, to join in your crusade.