Note: This is the second of a three-part op-ed series from ANZ on key trends among Australian small business owners and how to prepare for the current economic downturn.
If you’re looking to start a new business, a crucial first step is putting together a business plan. If you’re working on a small-scale passion project that you might eventually want to build into a small business, a structured business plan may feel like overkill. However, you can save yourself a lot of stress later if you set goals and put systems in place from the outset.
I like to remind small business owners that ‘failing to plan is planning to fail’: the adage is an oldie but a goodie. New business owners should look to establish at least a baseline plan of the direction they’d like to take their business in and outline short, medium and long-term goals within that.
When setting out to build your business plan, a few key elements to consider have been listed below. These will help you understand where your business is currently sitting, the business-related challenges you might need to overcome, and key long-term growth opportunities. Ideas around growth can be aspirational and will evolve as your business grows and changes.
Here are the key elements of an effective business plan:
Business Description: Describe your business’
Begin by asking yourself, “What business am I in?” Answer this question with details about your products or services and your target markets. What makes your business unique?
If this is a product-led business, what problem does it solve for the customer? If this is service-led, what makes your service different to other providers, or how does this service make customers’ lives easier?
Goals and objectives
Carefully defined written goals outline where your business intends to go and by when. Across the bank, we look at goals based on the SMART approach:
- Specific – What exactly do you want to achieve? Why do you want it? Make sure your more ambitious goals align with what’s important to you and the success of your business.
- Measurable – Exactly how much product sold meets this goal? What amount of annual revenue means you’ve met this? Specifically, what measurement can you track to measure progress?
- Achievable – Is your goal one you can actually reach, or are you setting yourself up to fail? What do you think is genuinely achievable with hard work and good planning?
- Realistic – A goal may be achievable but not realistic. You could achieve sales levels of X number of products within a year, but without an established customer base in your first 12 months, is this realistic?
- Timely – When do you want to achieve this? Setting a deadline will help guide your business management and make measuring progress across that period easier.
Objectives are the actual steps that your business will need to take to reach each goal. They tell you how to get where you want to go, helping your business focus on what matters.
Price positioning and strategy
How are you going to position your product or service in the market? Will you price low and compete on price with the aim of selling large volumes, or will you position your goods as luxury items? Your customers will want to get what they pay for, so it is important to be consistent with your price positioning.
Take into account the pricing of existing similar products, as well as the audience you want to attract and where you might want to be stocked or offered in the future. Repeated price rises can be jarring for customers, so getting this right up front is important.
Core competitive advantage
A core competitive advantage will help your business differentiate its goods or services from those of your competition. Compare your business to your competitors and think about how your offering can stand out from the crowd.
ANZ customer Michael Turner, owner of Tincture Hair Studio in Adelaide, knew that his salon had to offer a level of luxury and customer service that set him apart from competitors in the area. Repeat business was a significant contributor to his business plan, so even fine details became a huge priority for him, from the coffee his clients were offered to the hair care products sold in the salon.
Cash flow forecast
It’s vital to have an idea of your financial liquidity over a certain time period, say 12 months. Get a plan underway with a cash flow forecast detailing each month’s projected cash on hand, receipts, payments and overall cash balance.
Ensure that you include every item and consider seasonal sales changes. In addition, plan multiple scenarios, such as an optimistic sales forecast and a pessimistic sales forecast.
There are some laws and regulations that your business needs to know about, including consumer laws, health and safety, employment, tax and environmental laws. Consult a lawyer or business advisor to understand which laws you will need to follow.
Market research should be part of assembling your business plan. Whether you get customer feedback through a short survey or face-to-face focus group, quality research can help you understand what your target market wants and enjoys about your offerings.
Both primary research (surveys, interviews and speaking to customers) and secondary research (government statistics, trade publications and information that’s already been gathered) can be useful for improving your business.
Skills and experience of staff
Planning for a successful business requires the foresight to envisage what skills and experience your staff will need both now and in the future.
Now that you understand your product, financial objectives and goals, positioning strategy, and competitors, you should develop your marketing strategy. Depending on your target market, consider using social media, print and radio/advertising, trade shows, publicity and a well-designed business website.
Ongoing development strategy
Your business plan may be most useful when establishing your business, but reviewing and improving your strategy as things progress is just as important as maintaining your financial readiness for the ups and downs along the way.
For your business to continue to develop and grow, you’ll need to continuously check its foundations and structure and keep an eye out for areas of improvement.