How To Build A Business Plan Massarsky – 1 A SHORT TUTORIAL ON BUSINESS PLANNING FOR NON-PROFIT ENTERPRISES Cynthia W. Massarsky Compared to the private sector, nonprofits rarely do enough research and business planning before launching a new program. A structured process that culminates in the presentation of a formal business plan can separate the successful from the unsuccessful. This quick guide provides answers to frequently asked questions and a list of resources on business planning for nonprofits. 1 What is a business plan? The main tool for business development is a business plan. A business plan is an official, written document that describes what the company does, how it does it and why. It is the distillation of research into a comprehensive, coherent and concise document. Emerging businesses need a written plan to encourage careful thinking, foster discipline, establish internal communication, and improve coordination and clarity of purpose among managers and investors. Business plans help us estimate the amount of capital needed for a venture and help us raise it. And once the business is up and running, the plan provides a benchmark against which progress is defined and measured. Key issues addressed by a business plan include market demand, management, human resources, operations and capitalization. It describes the extent of the relationship between the business venture and the parent organization’s mission. A nonprofit that writes a business plan for affirmative action (a business that provides real jobs, competitive wages, career and ownership opportunities to people who are mentally, physically, economically, or educationally disadvantaged) will look different than one whose product or service is delivered by staff who are not. client. A non-profit organization writing a business plan to develop an existing enterprise, unlike a start-up venture, has the advantage of making predictions based on financial and operational history. Whether you are planning a new or existing business, you need to make your business plan comprehensive and compelling. Typical business plans have several components that, taken together, provide the reader with a complete picture of the financial and operational opportunities and challenges of a nonprofit enterprise. Visit The Partnerships on Nonprofit Ventures National Business Plan Competition to review the materials needed to compete in The Partnerships on Nonprofit Ventures National Business Plan Competition. 1 Some of this material appeared earlier in a different form in Business Planning for Nonprofits by Cynthia W. Massarsky. The Nonprofit Entrepreneur Creating Ventures to Earn Income, edited by Edward Skloot, Foundation Center, New York, 1988.
2 How does non-profit business planning differ from for-profit business planning? In the broadest sense, non-profit business planning is not very different from for-profit business planning. Both examine the industry and market for a venture’s product or service, outline operational and marketing plans, identify organizational and management needs, and translate objectives into monetary terms through pro forma financial statements. Both determine the purpose(s) of writing a business plan (eg raising capital) and shape the writing in terms of the audience they want to address. However, differences emerge when the goals of each are analyzed. In general, the primary goal of private sector businesses is to make money for their owners. Entrepreneurship among nonprofits, on the other hand, often exhibits several equally important goals. Goals do not always have to be aligned. For example, a home for young ex-offenders may have two goals: to make a profit by selling a product and to produce a product and sell it using the nonprofit’s own clients. This dual agenda, mixing retail and manufacturing with workforce training, will impact every aspect of the business, from its legal structure and ability to raise capital, to its management team, operating procedures, marketing plan and bottom line. Multiple objectives make business planning more complex and difficult to implement. Some of the issues associated with product pricing in the nonprofit sector are discussed in Oster, Pricing in Nonprofit Ventures. Business plans for non-profits often reflect a social commitment. The mission of the non-profit organization is often included in the plan. A non-profit organization may strive to generate income, but not, for example, at the expense of the relationship between the non-profit organization and the community in which it operates. What is the purpose of writing a business plan? A business plan is important because it requires careful thought and research and facilitates realistic decision-making based on accurate market-based financial projections. However, writing a business plan alone will not ensure the success of your venture if it is not sustainable. It will not serve as a smokescreen to hide management incompetence or financial incompetence. What a business plan will do is provide management, investors and other stakeholders with the information needed to support current and future market demand, and detail management and financial capability. It will operationalize your financial and program goals and provide you with guidance to monitor performance and make course corrections as needed. Furthermore, you can use it as a tool to advertise your company and attract financing through loans, grant makers, investors and other sources. 16.4.2002. 2
How To Build A Business Plan Massarsky
3 How do we start? A business plan is the natural successor to a feasibility study, a document that examines the different ways your company can operate and explores the conditions that would make it profitable. You can write your business plan before you start (to raise capital) or after you start (to raise additional capital, for credibility or for managerial planning). In either case, you start writing your business plan when you’ve gathered all the information you need to prove your business will succeed. How long should it take to complete our business plan? Recent research with nonprofits shows that it takes between three and twelve months for a nonprofit to research and write a business plan for a nonprofit enterprise. However, the time required to complete a business plan can vary, depending on a number of factors. It depends on the status of the company, as well as the number of staff and/or board members participating in the process. It depends on whether you have conducted a feasibility study and, therefore, whether you have data to support that your business concept is solid and market-driven, that your financial projections are realistic, and that your management has the necessary talent and experience. If these components are insufficient, the length of time to complete your business plan will depend on how many aspects of research and writing you need to do and how many of them you can do simultaneously. Clearly, all the key parties that will be involved in your venture should be considered. It is not good to prepare a plan if it is not based on a realistic assessment of those who will implement it. Our experience shows that the whole process goes most smoothly when the organization assigns a business leader to manage the process and move it forward. Who should write our business plan? There are several possibilities. One is to select a staff member, perhaps a potential new business manager, and assign him or her the task of creating the plan. Another option is for several employees to write the plan together. The team may include the CEO, CFO, development officer, special projects manager, and even board members. Finally, many organizations work with business consultants to help them research and write their plans. You might want to consider this option as well. Technically speaking, anyone with a thorough understanding of business, knowledge of financial statement construction, and good writing skills is capable of writing a business plan. The three most important considerations in determining who will write your business plan are the required skills, available time, and a clear understanding of the relationship and interplay between the business and the organization’s stated mission. April 16, 2002. 3
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4 How long should a business plan last? Your business plan should have as many pages as necessary to describe your venture and provide the details necessary to convince the reader that it will succeed. However, good business writing is concise and accurate. For example, when describing the work you do, you should be able to describe it in one or two sentences at most. Typical business plans for nonprofits are 40 to 60 pages. Should our business plan include a social return on investment (SROI), and if so, how? Calculating Social Return on Investment (SROI) is the non-financial return sought by a social entrepreneur. These returns vary by type of business activity, but are often found in affirmative action businesses (businesses that provide real jobs, competitive wages, careers, and/or ownership opportunities to people who are mentally, physically, economically, or educationally disadvantaged). An example of SROI is the number of jobs created through a company. In their financial projections, some nonprofits calculate a dollar amount that represents SROI. For example, calculating the dollars saved by the government because a number of staff can be withdrawn from welfare roles
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