Why do you need a business plan?
You may be wondering why you need a plan in the first place. After all, you have a clear idea in your mind about what you want to achieve. You know the market, you have the necessary skills. So why do you need a plan?
There are many good reasons. Here are just a few of them:
- To clarify your ideas: Writing something down gives it structure and substance. Your ideas will be clearer on paper than in your head.
- To discover and solve problems: The business idea you have in mind may have some holes – you might not have covered everything. This will become much more apparent when your words are on the page.
- To get feedback from others: A properly written business plan can be shared with trusted people to get their advice.
- As a formal document: Banks, investors, accountants and lawyers will want proof that you’re serious about your business. A written plan will provide that proof.
- To guide you as your business grows: A good business plan will keep you on track and focused, even as day-to-day work becomes a distraction.
If you’ve never written a business plan before, it can be a daunting prospect. But these 10 steps will help you create the perfect business plan.
1. The executive summary
This is where you describe your company and the product or service that it will sell. This must be brief, to catch and hold people’s attention.
Try to describe the goal and mission of your business in just a couple of sentences. Work hard at this and try to make it memorable.
Treat this section as an elevator pitch document – it should be succinct and easy to remember.
2. Who are your customers?
Do you have a clear idea of the type of people (or businesses) who will buy your product or service? If not, think carefully until you do.
This is one of the first questions any investor will ask you about your business plan. Have your answers ready.
- Know whether your customers will be consumers or businesses. If they are businesses, who will you target within those companies? Maybe it’s the salesperson, or perhaps it’s the CEO?
- Determine whether you'll have regular clients or one-off buyers.
- Make sure you’ve actually spoken to some of your potential customers.
3. Evaluate the target audience
There’s no room for guessing here. You need to identify the people or businesses who will buy from you. Think about the following:
- Demographics – such as age, gender and social status
- Firmographics – includes size of the company, revenue of the company and services or products of the company
- Location – perhaps a specific area, town, or even country
- Profession – maybe you’re targeting accountants, police or lawyers, for example
- Groups – such as people with shared interests or habits
The better you evaluate your target audience, the more comprehensive your business plan will be.
4. What are your opportunities?
Successful businesses think big. You might be starting small, but you don’t have to stay that way. So write down the possible opportunities for your business as it grows.
For example, perhaps you’re planning to start by selling over the internet. That’s great, but how will you get traffic to your site? How will people find you online? Will you need salespeople? If not, how will you convince people to buy from you?
As the business grows, is there scope for a bricks-and-mortar retail outlet? What other opportunities will you have if your business grows as planned?
5. Understand the competition
Every business has competition. If you don’t mention yours, investors will think you’re unprofessional – or just plain naive. Be thorough, and list all your existing and potential competitors:
- Who are your direct competitors – those selling the same products as you?
- Who are your indirect competitors – those whose market overlaps yours?
- What will prevent other companies competing with you – what are the barriers to entry?
- What is your USP (unique selling proposition)? In other words, what’s your point of difference that makes you different from your competitors?
That last point is important. You need to explain how your business will differentiate itself from all the others. That might be based on price, service, quality, range or value. Make sure you spell it out.
6. Build a simple financial plan
All business plans should contain some financial information. This should include the overall costs of setting up your business. For example:
- Cost to make or buy products
- Costs for labor and manufacture, including raw materials
- Employee costs, especially for service businesses
- Distribution and marketing costs
- Fixed and variable overheads
Good accounting software will help you create a draft financial model. We’ll look into this in more detail in a future guide. For now, talk to your accountant or bookkeeper for help and advice.
7. Include an outline marketing plan
For this section of your business plan, you need to think about the five ‘Ps’:
- Pricing – how will you price the end product?
- Positioning – how does your product or service fit into the market?
- Promotion – what channels will you use to attract and communicate with customers?
- Profit – how much do you expect to make per item sold?
- Place – what are your sales outlets?
8. Plan your operations
Put your vision to one side for a moment. What are the daily tasks that need to be done when running the business? Include all business processes such as manufacturing and packaging. Try to cover all departments too, including sales and customer service.
9. Get the right people
This is one of the most important factors. Think about who you want to hire. How will you find people whose skills complement yours? And how will you convince them to work for you?
Also think about who you want as your business advisors. You'll need people you can trust, to guide and mentor you at times when you need it.
10. Simplicity is the key
Keep it simple. Complex and long documents won’t be read – either by you or by potential investors. A business plan should be brief, relevant and focused (you can use our free business plan template).
If you find yourself getting carried away while writing, stop and take a break. Then go back and edit what you’ve written. Shorter is better. The core of a good business plan should be just a few pages long.
Plan your business around your strengths
As you write your business plan, keep in mind your strengths – and also any areas for improvement. This will help you construct a plan that makes the most of your abilities, while still being realistic. That's more likely to convince investors that you're serious.
Your business plan is a roadmap for your business – but it's not set in stone. Review it at least once a year and make changes if necessary.
Above all, keep getting feedback from your advisors – official and unofficial ones. With their help, you'll create the perfect business plan that takes you where you want to go.
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
Download the business plan template
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