Small business guide to business planning

Business planning can be important for all businesses, regardless of size. It can help clarify your direction, define your priorities, and set out how you plan to achieve your goals. For small businesses, where resources are limited, planning can be even more critical.

A clear plan can also be crucial when seeking funding. Lenders and investors want to see that you understand the market, have a strategy, and can manage risks.

Beyond funding, a business plan can guide day-to-day decisions, helping you stay focused, track progress, and adapt to changes.

You might view your business plan as a roadmap for sustainable growth.

Before writing their plan, many business owners start by defining their mission, vision, and goals. This can provide the foundation for decisions that follow in your plan. There are no rules here. However, many businesses follow a similar approach: 

• Your mission is your purpose; why your business exists. A strong mission statement can help you stay focused when making big decisions. 
• Your vision is your long-term ambition; where you want to go. This encompasses not just next year, but the next five or ten years. A clear vision can give your business direction and help employees, partners, and investors understand what you’re aiming for. 
• Your goals are the specific objectives you want to achieve. They should be measurable and timed. For example, increasing revenue by 10% in the next 12 months, or launching two new products by the end of the year. 

When your mission, vision, and goals are aligned, your business has a clear sense of purpose. That clarity can make it easier to plan, prioritise, and grow.

Understanding your market is key for new and growing businesses. Market research can help you get to know your customers, what they need, and how they behave. Competitor research can also help you identify industry trends, gaps, and opportunities.

To define your target market, consider demographic details such as age, location, income, and occupation, as well as factors like buying habits, preferences, and pain points. You might get this information through surveys, interviews, online research, and existing data.

Once you know your target audience, you might assess the size and potential of that market. This could involve evaluating how many people or businesses might need your product or service, how often they buy, and how much they typically spend. Market research can help you gauge demand and whether your business idea is commercially viable.

Competitor analysis is another consideration. This might involve identifying businesses that offer similar products or services and assessing their pricing, branding, and marketing strategies. Seeing how your competitors position themselves in the market and what kind of customers they attract can help you identify your unique selling points (USPs) – what makes your business different. Knowing what sets you apart can help you position your brand effectively to attract your target audience.

Effective market research and competitor analysis help you form a clearer picture of where your business could fit in the industry. Creating a business plan can help you work out how to get there.

Your business plan typically outlines how your business will operate and grow. No two business plans are the same, but many small businesses include several key sections as best practice: 

• Executive summary. Provides a brief overview of your business, including what you do, who you serve, and what your goals are. It’s often written last but appears first in the document. 
• Business description. Explains your business model, location, and the problem your product or service solves. This can also include your mission and vision statements. 
• Market analysis. Summarises your target market and competitor research. This typically includes insights about customer needs, market size, trends, and how your business is positioned to succeed. 
• Organisation and management. Outlines your business’s organisational structure. For sole traders, this may be simple. For partnerships and limited companies, it can include roles, responsibilities, and relevant experience. 
• Products or services. Describes what you’re selling. This can include explaining how your product or service works, what makes it different, and how it benefits customers. If applicable, it might also include information about suppliers, production, or intellectual property. 
• Marketing and sales strategy. Explains how you plan to attract and retain customers. This could include pricing strategies, promotions, and distribution methods. 
• Financial plan. Outlines your projected income, expenses, and cash flow. This section can be crucial if you’re seeking investment or loans, covering startup costs, funding needs, and break-even analysis. 
• Goals and milestones. Defines the specific targets and timelines you want to hit. This might include launching a product, reaching a revenue goal, or expanding into a new market.

Whether you sell physical products, digital goods, or services, clearly describing your offering to demonstrate how it meets customer needs can be crucial to a successful business plan. 

You might start by listing each product or service, explaining what it is, how it works, and who it’s for. Consider your USPs and focus on how your business can provide value to customers by saving time, solving a problem, or offering something new. 

If you sell products, including details such as materials, production methods, and sourcing, can also be useful. If you offer services, you might describe the process, tools, and expertise involved. 

After describing their offering, many small businesses provide an overview of their pricing strategies. You might explain how you set prices – through market, dynamic, or discount pricing – and which pricing models you’ll use – whether one-off purchases, subscriptions, or tiered packages.

Financial planning can be key to sustainable business growth. It’s not just about tracking income and expenses. It can help you manage day-to-day operations, prepare for unexpected costs, and plan for future success. 

Cash flow management 

Cash flow management is the movement of money in and out of your business. Positive cash flow means you have more money coming in than going out, while negative cash flow means you’re spending more than you’re earning.

Managing cash flow involves monitoring when money is expected to arrive (whether from sales, invoices, or funding) and when it’s going out (for rent, salaries, stock, or bills). Late payments or unexpected costs can disrupt operations, but regular weekly or monthly forecasting can help you stay in control. 

Budgeting 

Budgeting is setting a limit on how much you plan to spend in various areas of your business, helping you control costs and avoid overspending. Budgets typically begin with a list of fixed expenses (such as rent, insurance, and salaries) and a list of variable costs (including stock, packaging, and marketing). 

This can help you estimate your expected income and work out whether you expect to make a profit or loss in a given period. You can review and adjust your budget as your business grows and changes. 

Forecasting 

Forecasting can help you predict your future financial performance based on historic data, market trends, and business goals. 

You can forecast revenue, expenses, and profit over the next quarter, year, or several years. For example, if you know sales increase during the Christmas period, you might forecast higher Q4 income and plan stock and staff accordingly. Forecasts can help businesses make decisions about hiring, pricing, investment, and expansion. They can also show lenders or investors that you are thinking ahead. 

Funding 

Whether starting a business, expanding, or managing cash flow, many small business owners need to apply for funding at some point. Popular options include: 

• Personal savings. Often the first source of capital for new businesses. 
• Business loans. Provided by banks, typically requiring a detailed business plan and good credit history. 
• Government schemes. Programmes like the Start Up Loans scheme can offer low-interest loans and mentoring support. 
• Grants. Some local councils and organisations offer grants for innovation, sustainability, or job creation. 
• Equity investment. Funding, typically from angel investors or venture capitalists, is obtained in exchange for a share of your business. 

Each option can have advantages and disadvantages. Loans can provide quick access to capital, but they must be repaid with interest. While grants don’t, the application process is typically very competitive. Equity investment can bring in capital and potentially expertise, though investors may expect a stake in your business and influence over major decisions.

Running a small business is a journey. Monitoring your performance against your business plan as your company grows can help you stay on track and motivated along the way. Many small businesses do this by setting milestones and key performance indicators (KPIs).

Milestones are specific targets you want to reach within a set timeframe. For example, launching your website, reaching a revenue goal, or expanding into a new market. Milestones can help you break a long-term vision down into more manageable steps.

KPIs are metrics that can reflect how well your business is performing. Common KPIs include monthly revenue, profit margins, and conversion rates.

Tracking performance regularly can help you understand what’s working and what’s not. Without business planning, small businesses can find it easy to lose focus, overspend, and miss growth opportunities. Creating a detailed plan can empower you to make big decisions and grow your business sustainably.