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For all the latest news and information from ThinkSmart Software.
Every business should have a business plan. If you have a small or medium-sized enterprise (e.g. perhaps you run a dance studio or a tutoring school), you might be tempted to skip the business plan as an unnecessary formality. After all, your business model is relatively straightforward - you'll teach lessons, do some advertising, and pay for a studio (or even teach from home). However, there is real value in writing a business plan for companies of all sizes, including single-person operations.
Let's take a look at why you need a business plan and the steps involved in writing one.
Why You Need a Business Plan
The UK government lists four excellent reasons for writing a business plan. They say that these plans "clarify your business idea, spot potential problems, set out your goals, [and] measure your progress."
Many times, when we come up with a business idea, we do some back-of-the-envelope calculations in our heads. These calculations go something like: 20 students at $20 per hour, 5 hours a week, is $2,000 a week in revenue. You'd need to pay $2,000 a month in rent, maybe $3,000 a month on payroll, and other overheads, which would leave you with somewhere around $3,000 a month in profit (assuming four weeks in a month).
The business idea makes sense, intuitively. But there are so many unanswered questions. What, precisely, is your overhead? How much you spend on advertising, phones, signage, computers, taxes, licensing fees, etc. can change your profit margins substantially. Similarly, how will you get these 20 students? How and where will you advertise? How long will it take you to get 20 students?
All these questions are crucial to the success of your business. Without answers to them, you have a general idea, but no specific plan to execute. A business plan, as the name implies, gives you those concrete steps. You'll have all the answers to your why questions as part of writing the document!
How To Write a Business Plan
Fortunately, writing a business plan isn't particularly challenging, although it is time-consuming due to the amount of research involved. The Australian government provides a great business plan template on their site (or download the template directly download the template directly here). It breaks down everything you need to know. Even though it might be for Australia, the sections are entirely applicable for businesses around the world, including the UK and USA.
Let's break down each section and its purpose. Even if you elect not to use the business template above, you'll need to cover all of these topics in your custom template.
In this section, you'll include all the necessary information about your business. For example, you'll put when it started, where it began, all registration numbers (e.g. your ABN in Australia), and the legal type of your business (for the USA, this is important because of the distinction between LLCs and corporations). You should also include the owner's name or names and their previous experience.
After you finish writing the rest of your plan, you'll go in and provide an outline of each subsequent section in your summary. Think of the summary section as the high-level overview of what your business is about, and how it will make you money. If people want more details, they'll read the corresponding sections after this one.
Here's where you describe the basics of your business. What does your company do, what employees do you have, and where will you do business? You'll want to describe any key innovations that you have and any products or services that you offer.
A dance studio, for example, might write that they teach dance classes online, and they have one employee (the founder) but hope to get more. The business will conduct its classes virtually, to save on studio space costs.
Give the prospective reader a detailed overview of what and how your business does what it does!
In this section, you'll detail the market, including who your competitors are, the scope of the market, and how you think you'll be able to differentiate yourself. You'll also deep-dive into who your potential customers are..
The idea behind this section is to give you, and potential investors, an idea of how easy it will be to make money, how much you expect to advertise, and if you'll face stiff competition. Business plans that include a sizeable market with some differentiating factor for the service or product the company is offering are usually the best received.
Most business plans recommend doing a SWOT analysis in this section. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The idea behind this is to research and comprehend all the good and bad that your business will have. Project Smart has an excellent deep-dive on SWOT, and what you can include in this section.
This section is relatively self-explanatory. In this one, you'll describe your goals and visions. Set realistic, powerful objectives. Many people make the mistake of being too aggressive or too narrow in this section. Yes, you can probably sign up one paying customer to your studio in a year. No, you probably won't sign up 10,000 at $100 a month! A realistic goal might be two students a month, or 24 students for the year.
Of course, your business might have a different situation. Maybe for you 10,000 is reasonable. The point is, don't be ultra-conservative or ultra-aggressive. Take time on this section and think about what is a realistic, attainable, but still impressive goal!
Finally, a quality business plan needs to include financials. You should outline your current financials, as well as your expected ones (that is, if you hit your goals, what will your income, balance sheet, etc. look like then?).
Pay special attention to cash flow and your break-even analysis. Many businesses may already have this in hand, but for those starting out, it is especially important to keep an eye on your incoming and outgoing transactions. It is best practice to operate in the black or as close to as possible. Review all your financials at regular three or six-month intervals and make adjustments as necessary.
You Can and Should Write a Business Plan>
No matter what size your business is, writing a business plan is helpful. It forces you to think about your business, about the future, and about where you see your endeavours in 10 years. It forces you to think about the market and how many people want your services.
A business plan is also essential if you want to attract outside investment. Typically, banks and other investors won't consider giving you money until you have this document written up. Take the time to write up your business plan. It's a time investment very much worth making!