How to do a business plan: 10 steps for small business

Published Thursday 26 February 2026

Table of contents

• What is a business plan?
• Why do you need a business plan?
• Set clear business goals and objectives
• 1. Write your executive summary
• 2. Identify your target customers
• 3. Research your target market
• 4. Complete a SWOT analysis
• 5. Build a simple financial plan
• 6. Outline your marketing strategy
• 7. Plan your daily operations
• 8. Build the right team
• 9. Use a business plan template
• 10. Keep your plan simple and focused
• Common mistakes to avoid
• Implement and review your business plan
• Use Xero to bring your business plan to life
• FAQs on business plans

Key takeaways

• Set SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) before writing your business plan to ensure every section works toward clear, trackable outcomes like reaching $100,000 in revenue within 12 months.
• Complete a SWOT analysis to identify your internal strengths and weaknesses alongside external opportunities and threats, which helps you understand your competitive position and plan realistic strategies.
• Build a simple financial plan by listing key costs including product costs, employee expenses, marketing costs, and overheads, then use accounting software or work with an accountant to create realistic projections.
• Keep your business plan concise and focused by aiming for 10-20 pages maximum, writing in plain English, and including only information that's relevant to your audience of investors or lenders.

What is a business plan?

A business plan is a written document that outlines your business strategy, goals, and path to profitability. It serves as a roadmap that guides your decisions and can uncover costly operational issues. For example, one business analysis revealed stock shrinkage amounted to 11.65 per cent of the total cost of goods sold.

A business plan differs from a business proposal, which is a pitch to sell a product or service to a prospective customer.

Why do you need a business plan?

A business plan helps you turn ideas into action and proves to others that your business is viable. Even if you know your market and have the right skills, writing it down brings clarity and structure.

Here's why it matters:

• Clarify your ideas: Writing forces structure and substance, making your ideas clearer on paper than in your head
• Discover problems early: Gaps in your thinking become obvious when you write them down, helping you solve issues before they cost money
• Get valuable feedback: A written plan can be shared with trusted advisors, mentors, and experts for their input
• Prove you're serious: Banks, investors, accountants, and lawyers need formal documentation before they'll work with you
• Stay focused as you grow: A plan keeps you on track when day-to-day demands become distracting

If you've never written a business plan before, it can feel daunting. These 10 steps will help you create one with confidence.

Set clear business goals and objectives

Business goals define what you want your business to achieve. Setting clear objectives before you write your plan ensures every section works toward the same outcomes.

Define SMART business goals

Goals that are Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) help you create objectives you can actually track and accomplish.

Here's how to apply SMART to your business goals:

• Specific: Define exactly what you want to achieve, not vague aspirations
• Measurable: Include numbers so you can track progress
• Achievable: Set goals that stretch you but remain realistic
• Relevant: Ensure each goal connects to your overall business strategy
• Time-bound: Set deadlines to create urgency and accountability

Examples for small businesses:

• Reach $100,000 in revenue within 12 months
• Acquire 50 paying customers by the end of Q2
• Launch two new products before the end of the financial year
• Reduce operating costs by 15% within six months

Your goals shape the rest of your business plan. Financial projections, marketing strategies, and operational plans should all connect back to these objectives.

1. Write your executive summary

The executive summary is a brief overview of your entire business plan. It describes your company, product or service, and business goals in a way that captures attention quickly.

Think of it as your elevator pitch. Aim to describe your mission in just a couple of sentences, making it memorable and easy to understand. This section often determines whether investors or lenders read the rest of your plan.

You can read more about how to create the executive summary in our guide What is an Executive Summary in a Business Plan?

2. Identify your target customers

Target customers are the specific people or businesses most likely to buy from you. Identifying them clearly is essential because investors will ask about your customers first.

Have your answers ready before you start writing:

• Define your customer type: Determine whether you're selling to consumers or businesses, and if businesses, identify the decision-maker you'll target
• Identify purchase patterns: Clarify whether you'll serve regular clients or one-off buyers
• Validate with real conversations: Speak directly with potential customers to confirm your assumptions

3. Research your target market

Target market research goes beyond identifying customers to understanding their characteristics in detail. This analysis helps you tailor your product, pricing, and marketing to reach the right people.

Consider these key factors:

• Demographics: Consider age, gender, income level, and social status of individual customers
• Firmographics: Consider company size, revenue, industry, and the products or services business customers offer
• Location: Define your geographic focus, whether a specific suburb, city, region, or country
• Profession: Identify specific occupations you're targeting, such as accountants, healthcare workers, or tradespeople
• Interest groups: Target people with shared hobbies, values, or purchasing habits

The better you understand your target market, the more focused and convincing your business plan will be.

4. Complete a SWOT analysis

A SWOT analysis examines your business's internal Strengths and Weaknesses, plus external Opportunities and Threats. This approach helps you understand where you stand and how to compete effectively.

Identify your strengths

Strengths are internal advantages that give you an edge over competitors. Being clear about what you do well helps you focus your strategy and communicate your value.

Consider these strength areas:

• Skills and expertise: Identify what you or your team do better than others
• Resources: Leverage assets, technology, or relationships that competitors lack
• Reputation: Build on brand recognition or customer loyalty you've established
• Unique selling proposition: Define your specific point of difference in the market

Acknowledge your weaknesses

Weaknesses are internal limitations that could hold your business back. Being honest about these helps you plan to improve and shows investors you're realistic. For instance, identifying that a product line's sales are well below industry standard demonstrates self-awareness and pinpoints a clear area to improve.

Common weaknesses to assess:

• Skills gaps: Identify expertise you lack and need to hire or develop
• Resource constraints: Assess limited funding, equipment, or technology
• Experience: Recognise areas where you're still learning
• Capacity: Acknowledge limits on how much you can produce or deliver

Spot opportunities for growth

Opportunities are external factors you can take advantage of to grow your business. Identifying them early helps you plan for expansion and stay ahead of market changes.

Look for opportunities in:

• Market trends: Identify shifts in customer behaviour or industry developments you can capitalise on
• New customer segments: Target groups you could serve as your business grows
• Distribution channels: Explore additional ways to reach customers, such as online sales, retail locations, or partnerships
• Product expansion: Develop new products or services that complement your existing offerings

Understand competitive threats

Competitive threats are external challenges that could impact your business success. Understanding your competition shows investors you're realistic about the market and have a strategy to stand out.

Analyse your competitive landscape:

• Direct competitors: Identify businesses selling the same products or services as you
• Indirect competitors: Recognise businesses whose offerings overlap with yours or solve the same customer problem differently
• Market changes: Monitor economic shifts, regulations, or technology that could disrupt your industry
• Barriers to entry: Assess how easily new competitors could enter your market

5. Build a simple financial plan

A financial plan outlines the costs of starting and running your business, plus your expected revenue and profit. Many business owners find this section intimidating, but it doesn't need to be complicated.

Start by listing your key costs:

• Product costs: Calculate what you pay to make or buy the items you sell
• Labour and materials: Include wages for production staff and raw material expenses
• Employee costs: Account for salaries, wages, and related expenses for your team. It's important to measure these against relevant benchmarks. For instance, a case study found salary expenses were over 50% of sales, far exceeding the industry benchmark of 20–25 per cent.
• Marketing and distribution: Factor in costs to promote your business and deliver products to customers
• Overheads: Add fixed costs like rent and insurance, plus variable costs that change with sales volume

Accounting software like Xero can help you build financial projections using your real business data. Your accountant or bookkeeper can also review your numbers and help you create realistic forecasts.

6. Outline your marketing strategy

Your marketing strategy explains how you'll attract and retain customers. A clear marketing plan shows investors you understand your market and have a realistic path to sales.

Consider these five key elements:

• Pricing: Determine how you'll price your product or service to cover costs and generate profit
• Positioning: Define where your offering fits in the market compared to competitors
• Promotion: Choose the channels you'll use to reach and communicate with customers. Your own data can reveal key timing insights; for example, when one business analysed their data, they found that 86 per cent of sales occurred after 11:00 a.m., suggesting promotional efforts should be focused on the afternoon.
• Profit margins: Calculate how much you expect to earn on each sale after costs
• Place: Decide where and how customers will buy from you, whether online, in-store, or through distributors

7. Plan your daily operations

An operations plan describes how your business will run day-to-day. It translates your vision into practical tasks and processes that keep the business functioning.

Cover these operational areas:

• Core processes: Define manufacturing, packaging, service delivery, or product creation workflows
• Support functions: Organise sales, customer service, administration, and logistics
• Workflows: Map how tasks move through your business from start to finish
• Systems: Select tools and technology you'll use to manage operations

8. Build the right team

Your team plan identifies who you need to hire and when. The right people can make or break a business, so investors pay close attention to this section.

Consider these team-building factors:

• Skills gaps: Identify capabilities you lack and need to hire for
• Hiring timeline: Plan when you'll need to bring people on as the business grows
• Attraction strategy: Determine how you'll convince talented people to join your team
• Advisors and mentors: Identify trusted experts who can guide you through challenges

You can read more in our guide on hiring employees.

9. Use a business plan template

A business plan template provides a proven structure so you don't miss critical sections. Templates save time and help you organise your thinking.

Here's how to use one effectively:

• Choose a relevant template: Select one designed for your industry or business type
• Customise for your needs: Adapt sections to match your specific business model
• Use it as a checklist: Ensure you've covered all the essential components
• Don't over-complicate: Fill in what's relevant and skip sections that don't apply

Download our free business plan template to get started.

10. Keep your plan simple and focused

A focused business plan gets read. Long, complex documents often get ignored by busy investors and lenders.

Keep your plan concise:

• Aim for brevity: The core of your plan should be just a few pages
• Edit ruthlessly: If you find yourself getting carried away, stop and cut back
• Focus on what matters: Include only information that's relevant to your audience
• Use clear language: Avoid jargon and write in plain English

Common mistakes to avoid

Even experienced business owners make mistakes when creating business plans. Learning from others' errors helps you create a stronger plan from the start.

Watch out for these common pitfalls:

• Making it too long: Investors and lenders are busy. Keep your plan concise and focused on what matters
• Being overly optimistic: Unrealistic financial projections damage your credibility. Base forecasts on research, not wishful thinking
• Ignoring competition: Every business has competitors. Failing to acknowledge them makes you look naive
• No clear unique selling proposition (USP): If you can't explain what makes you different, investors won't understand why customers will choose you
• Skipping market research: Assumptions about your customers aren't enough. Validate your ideas with real data
• Writing for yourself: Your plan needs to convince others, not just remind you of your ideas. Write for your audience
• Weak executive summary: This section often determines whether anyone reads further. Make it compelling
• Never updating it: A business plan isn't a one-time document. Review and revise it as your business evolves

Implement and review your business plan

Writing your business plan is just the beginning. To make it truly valuable, you need to use it regularly and keep it current.

How to implement your plan

Turn your plan into action with these steps:

• Share with your team: Make sure key people understand the strategy and their role in it
• Set specific actions: Break goals into tasks with owners and deadlines
• Track progress: Monitor key metrics against your projections
• Guide decisions: Use your plan as a reference when making business choices

When to review and update

Your business plan should evolve as your business grows:

• Quarterly: Check progress against goals and adjust tactics
• Annually: Conduct a comprehensive review and update projections
• Before seeking funding: Refresh your plan with current data before approaching lenders or investors
• When circumstances change: Update after significant events like new competitors, market shifts, or business pivots

Use Xero to bring your business plan to life

A well-crafted business plan sets your direction, but you need the right tools to execute it. Xero's cloud-based accounting software helps you track the financial metrics in your plan, monitor progress toward your goals, and make informed decisions as you grow.

Xero supports your business planning with:

• Real-time dashboard: Track key financial metrics and key performance indicators (KPIs) at a glance
• Professional reporting: Generate reports for lenders and investors, and compare actual performance against your projections
• Automated bank feeds: Keep your financial data accurate and current with automated reconciliation
• Easy collaboration: Share real-time data with your accountant or advisor for ongoing guidance

Ready to turn your business plan into reality? Get one month free and see how Xero makes managing your business finances simple.

FAQs on business plans

Here are answers to common questions about creating and using business plans.

How long should a business plan be?

A business plan should be as long as it needs to be, but no longer. Most effective plans are 10 to 20 pages, with an executive summary of one to two pages. Focus on quality and relevance over length.

What's the difference between a business plan and a business proposal?

A business plan guides your business strategy and operations internally. A business proposal is an external document that pitches your product or service to a potential client or customer. Learn more in our guide on how to write a business proposal.

When should I update my business plan?

Review your business plan at least once a year, and update it whenever significant changes occur. This includes launching new products, entering new markets, facing new competitors, or preparing to seek funding.

Do I need an accountant to write my business plan?

You don't need an accountant to write your entire plan, but they can help with financial projections and review your numbers for accuracy. Xero makes it easy to collaborate with your accountant by sharing real-time financial data.

How detailed should my financial projections be?

Include at least three years of projections. For the first year, provide month-by-month forecasts. For years two and three, quarterly projections are sufficient. Cover revenue, expenses, cash flow, profit and loss, and when you'll break even. Be realistic rather than optimistic.