Do You Really Need To Write A Business Plan And Raise Capital?
A great many people enter the business world without a business plan. In fact, I would argue that the vast majority of entrepreneurs and small business owners take this “fly by the seat of their pants” approach when it comes to starting or operating a company. They’re too busy fighting the day to day operational battles to ever really take a step back, look at the big picture, and envision what their future might and should look like.
Sadly, I suspect that there’s a strong correlation between businesses that fail and businesses that operate without a business plan.
So my answer to the question “Do You Really Need to Write a Business Plan” is an emphatic….yes! Now, in the interest of disclosure, I have been writing business plans, creating financial models, putting together investor presentations, and raising capital for clients for parts of three decades now, so this advice may seem somewhat self-serving. I can assure you, it is not.
A business owner who hasn’t mapped out at least the next five years of his/her business is sailing aimlessly in the ocean, hoping to stumble upon land. A business plan, however, is like a carefully charted course to help guide you along the way, give you inspiration, and provide you with the focus needed to succeed and reach your destination.
Going through the exercise of writing a business plan provides you with a significant amount of valuable information that you can use in your day to day business. With it, you’ll have a better understanding of your market and the trends affecting it. You’ll understand who your customers are, what motivates them, and how to reach them. You’ll gain an insight on who your competitors are, what they are doing well, and areas on which you might improve to give yourself an advantage. You will have clearly defined your product and/or service offerings, how you will operate your company, what channels you will use to market to customers, and perhaps most important of all, you’ll have a clear understanding of your revenue goals, your capital expenditures, and your operating expenses. You’ll also gain insight into how much capital you might need to do all the things you want to do, and a good idea of what your business will be worth if you hit all your projected milestones.
If you’re conducting business without this information, it’s like hunting with a blindfold on – you might get lucky and hit a target once in awhile, but that’s not a great long term strategy for survival.
The second question, and perhaps the one more open to debate is “Do You Really Need to Raise Capital”? The answer to this question is somewhat less straightforward.
Starting a business on a shoestring, and fueling growth through internal cash flows has its advantages. You retain 100% control and ownership of your company which allows you to operate as you see fit. Your growth, however, is going to be subject to being able to invest a sufficient enough amount of capital back into your business to hit your goals, and it’s also largely contingent on you having enough time to focus of developing, as opposed to operating, your company. So many business owners get mired down in day-to-day activities, they become trapped as their own employees.
Finding investment capital, however, can be a path towards rapid acceleration, whether it comes as debt, such as a loan from a bank, or as equity, from investors who receive ownership in your company in exchange for capital. These funds can be used to purchased equipment needed to speed up production or perhaps to hire a few key employees to help run the business while you focus on growing it.
Ultimately, the answer to the capital question lies within your business plan. If your operations create enough income to fuel your growth, you’re set. If not, you’ll certainly know how much money you’ll need and when you’ll need to raise it, so that you can plan accordingly.
Todd Smith, CEO
Blue Horizon Venture Consulting