Chapter 2

How to write a business plan

Writing a business plan will help nail down your idea and give you a blueprint for executing it.

A person at a desk in their workshop writing a business plan.

What is a business plan?

A business plan describes your product or service, identifies who the customer is, explains why they need your product or service, and shows how you’ll make money from that opportunity.

Why write a business plan

How you write a business plan will depend on what you need it to do. There are a couple of key jobs a business plan can have. It can:

  • explain a business idea
  • convince lenders or investors to put money behind that business idea

It doesn’t take a book to do the first job. You can write a business plan that’s short, to the point, and easy to update. That may be all you ever need. But if you’re going for funding, your business plan will need to be a good deal longer and more comprehensive.

Why every business should start with a one-pager

Even if you will eventually write a long business plan, a one-pager is a great place to start. It could take as little as an hour to do your first draft and will make your idea stronger. Writing about customers, competitors, income and expenses will help develop your thinking.

How to write a one-page business plan

You’ll see in the example below that there are nine sections, or things to write about. So give yourself just a small space to write about each. Keeping it short will help you focus on what’s important.

When you need a longer business plan

The greater the risk you’re taking, the more comprehensive your plan should be. For instance, you’ll need to write a long-form business plan if you’re going to fund it with other people’s money. Banks and investors will expect it.

How to write a longer business plan

Long-form business plans touch on all the same things as a one-pager, but they go into more detail and contain fewer assumptions.

Back-of-the-napkin numbers are replaced by forecasts and budgets. And guesstimates for things like costs, market size, customer preferences, and competitor weaknesses need to be backed up with proof. It’s a good idea to involve an accountant or bookkeeper in developing the budgeting and finance sections.

Contents of a business plan:

  1. Executive summary:A short summary of the main points of your business plan. Write it last.
  2. Company overview: Identify your industry, what you’re selling, and how you’ll charge.
  3. Products or services: Include a description of the problem you’re solving for customers.
  4. Market analysis: Describe your target market, and examine the competition.
  5. Risk assessment: Flag potential hurdles (including assumptions that could be proved wrong).
  6. Marketing and sales plan: How will you find customers and make sales? How many sales will there be?
  7. Milestones: What needs to happen and when?
  8. Progress reporting: When and how will you report against the milestones?
  9. Team: Who will be involved in the business? Note their skills and responsibilities.
  10. Budget: Estimate your costs and income (and any debt that you plan to take on).
  11. Finance: Show how you’ll fund the business.

You can also add an appendix with any supporting or background documents.

How not to write a business plan

Avoid these common business planning mistakes:

  • Underestimating how much money it will take to get started
  • Failing to budget for the first few months of operation (before revenues start flowing)
  • Expecting sales to ramp up too fast
  • Relying too heavily on one or two customers (or suppliers)
  • Not including contingencies for unexpected delays or costs

Disclaimer

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 content provided.

How to start a business

Thousands of new businesses open every day. If all those people can do it, why not you? Here’s what to do, and when.

  1. How to do market research

    Your business idea is clearly inspired. But it helps to check you’re not the only one who thinks so.

  2. How to write a business plan

    Writing a business plan will help nail down your idea and give you a blueprint for executing it.

  3. Budgeting and forecasting

    It’s time to run some numbers on your business idea. Budgeting and forecasting help with that.

  4. Pricing strategies and cost of goods sold

    Your prices can influence the number of sales you make and the profit you earn on each transaction.

  5. Types of business structure

    Your business structure can affect how much tax you pay, and how you're treated by the law.

  6. Small business accounting

    If you’re starting a business, then you’ll need to get familiar with some accounting basics.

  7. Registering a business and other admin tasks

    After all the excitement of deciding to start a business, you’ll have some paperwork to do.

  8. How to create a business website

    Treat your website like an online version of a storefront. It’s the first impression for many customers and prospects.

  9. Tools and guides for your business

    Now that you’re in business, you want to stay there. Xero’s got resources and solutions to help.

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