Does a startup necessarily need a business plan to raise money?

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The business plan is the blueprint for your business. Starting a business without a business plan is just as risky.

Writing a business plan is the best way—other than going out and doing it—to test whether an idea for starting a business is feasible. In this sense, the business plan is your safety net. If working through a business plan reveals that your business idea is untenable, it will save you a great deal of time and money.

Often, an idea for starting a business is discarded at the marketing analysis or competitive analysis stage, freeing you to move on to a new (and better) idea.

Unfortunately, many prospective business owners are convinced that their idea for a product or service is a can’t-miss proposition, so they don’t take the time to do the necessary research and work through a proper business plan. The more you know about your industry, your prospective customers, and the competition, the greater the likelihood that your business will succeed.

Most new businesses need startup and operating capital to get off the ground. Without a well-developed business plan, there is no chance of getting debt financing from established financial institutions such as banks or equity financing from angel investors.

Established businesses often need money, too, to do things such as buy new equipment or property, or because of market downturns. Having an up-to-date business plan gives you a much better chance of getting the money you need to keep operating or to expand.

Investors and financiers are always looking at the risk of default, and word of mouth is no substitute for written facts and figures in a properly prepared business plan.