You have a business idea, but you don't have a business background. What do you do? You write a business plan.
If you are someone who wants to start a business, whether or not you have a business background, you need a business plan.
Did you know that there is more than one use for your business plan?
On my previous blog posts, I mention how a business plan can be used to get you from the business idea to a more concrete business model. Today, I wanted to show you the different ways you can use a business plan for your startup.
You can use a business plan:
As a Tool
To test the validity of your business
To get funding from a bank or investor
To Lease commercial space
To attract partner.
Join an incubator or accelerator program
Minimize risk
Use as a Tool
The first and probably most important way to use your business plan, using it as a tool. A tool it is used to implement a particular function. In this case your business plan is used to accurately portray the strategies and information you can use to start and grow your business.
Keep in mind that I am talking about a well-written business plan.
I have seen many badly written business plans that in reality, the only tool they can be used as is a paperweight or a tool to help you go to sleep, literally. They are long-winded and have very little useful information. I am definitely not talking about that type of business plan.
I am talking about a well-written, concise business plan with accurate, up-to-date information that will showcase your business concept in a clear way.
A well-written business plan will give you the information you need to understand where your industry is headed, what external factors can potentially affect your business, who your competitors are, who your customers are, and an overall understanding of your business.
Test the Validity of your Business
A business plan can test the validity of your business concept. By having the right information on your business plan you can see whether it will be a success or not.
The reason this is important is because you don't want to waste time or money with a service or product that may not work.
Starting a business is a risk, as an entrepreneur you need to understand that. Minimizing risk is important. So if you can minimize the risk by validating your business idea, would you do it? Of course you would!
By having accurate information within the different sections of your business plan, i.e. the industry, competitor analysis, the market, finances, etc., you will be able to see whether or not your business will be a viable one.
I’ll give you an example. Let’s say you want to open a limousine rental business. According to an article written by Brandon Gaille, the limousine industry is increasing but the competition from ridesharing companies like Uber, is causing limousine companies to struggle.
A business plan will not only show you the possible outside threats like ridesharing but whether or not something like that will affect your business. From there you would be able to test the validity of starting a company like this.
Keep in mind, there are going to be products and services that are no longer valid.
Just consider all those jobs that no longer exist. For example, back in the day before cell phones, there was a service where people would go around cleaning payphones.
A business like that is obsolete now. Therefore, obviously you're not going to start a business cleaning payphones.
So, it's a good idea to test the validity of your business before going all in and launching it.
Get funding from a bank or investor
Third, the business plan can be used to get funding. This is one of the main functions of a business plan. In order to start your business, you’re going to need startup capital.
So what do you do?
You take your business plan to the bank or to investors.
If you are going to a bank I would suggest going to a smaller bank, they tend to be better at working with you. I had a client who needed a $60,000 loan. Her bank was great at helping her get all the paperwork she needed to present submit her loan request. Part of the process was that she needed a business plan. Needless to say, she got the loan because along with the credit check and all the other paperwork she had a great business plan full of accurate information.
The thing you have to remember is that even though you are submitting your business plan to the bank, there is still a person behind that organization that is going to read the plan. It doesn’t get sent through a computer program or algorithm, it is read, subjectively and objectively by an actual person.
So the business plan needs to not only include all the viable information but also persuade the reader into seeing how feasible the business is and the potential for profit and loan repayment.
The same goes for an investor.
The business plan needs to be written with factual information and viability.
And an investor, is going to be focused on the business concept and the person behind the business. I’m going to use shark tank here as an example, just because it shows how investors react. There was an entrepreneur on shark tank who sold belts. He had a simple idea but man this guy could hustle. They were impressed with him, the entrepreneur. So this guy was from Utah and he went to New York to present his business idea of hole-less belts. But what impressed the investors was this guys hustle. While in New York he had time to spare so he went door-to-door selling these belts. The sharks knew that this entrepreneur was going to work hard and make his business a success.
A business plan is used to get funding.
Whether you are showing it to a bank, an investor, or even family remember they are people if they believe in your business and in your ability to repay them they will help fund your business.
Lease commercial space
Moving on, fourth to present it to a landlord when signing a commercial lease. If you are a startup, your landlord may ask to see your business plan. And yes, this is actually a thing.
I have had clients ask me to write a business plan so they can present it to the leasing agent or landlord. If you are interested in leasing a space just keep in mind that the landlord isn’t going to lease the space to just anyone. There is a qualification process. And part of that process is showing them your business.
In this case, like in the others, the business plan is going to validate your business. Especially if this is your first time starting a business. They want to see that you know what you are doing and that you have a plan to execute that idea.
Whether your business is a product or service based business the leasing agent wants to make sure they’re going to get their money.
Keep in mind, to them, this is a business transaction. The landlord is in the business of leasing out space for money and they want to make sure they’re going to get it. So have your business plan ready.
To attract a business partner
You might be at the point where you realized you need a partner. Whether it is a strategic partner or an investing partner they may ask you for your business plan.
I had a client who was an investing partner in a business. He believed in the business so much that he became the COO of the company and invested a good amount of money into the company.
Maybe you are at the point where you want someone who will not only invest in your startup but will also be someone who will help you operate the business. A great way to attract an investing or strategic business partner is with a well-defined business plan.
Join an incubator or accelerator program
An incubator and accelerator program both offer entrepreneurs help all beit through different means. I'm not going to get too much into the differences, you can check out this article by TechRepublic, that explains the differences.
A lot of times these different programs will ask you for a business plan. An article by RocketSpace also explains the differences and states that in order to join an incubator you'll need a business plan. A lot of accelerator programs also require you to have a business plan. Check out my case study on how one of my clients had to submit his business plan to join an accelerator program.
So, just keep this in mind when looking to join an incubator or accelerator program.
Minimize Risk
Lastly, a business plan can help you minimize the risk involved in starting a business.
There are several ways you can reduce the risks, I'm of course focusing on the business plan but if you are interested in other ways you can reduce risk in your business, check out this article by DUE, How Entrepreneurs can Reduce the Financial Risks of a New Business.
Your first step in minimizing risk is with a solid, well-written business plan. A business plan can show you the risk you can get from new or existing competition, environmental risks, economic risks, etc.
By knowing what risks to expect you'll know how to deal with them. In business, you're always taking risks. But knowing that and knowing what risks you're likely to face will help you deal with and minimize them.
Conclusion
I hope this gave you a better understanding for the need of a business plan.
Not just any business plan, a well written business plan with accurate, applicable information that will help you reach your goals.
If this has been helpful or if you know someone who would benefit from this information share the post.
And as always if you are in the need of a business plan I’m here to help.