The difference between business planning for for-profit businesses and nonprofit businesses is that nonprofits have a “double bottom line” – they have to pay attention to both making enough money to operate the organization effectively and efficiently AND to fulfilling their mission.
Nonprofit “business” includes mission-related programs, products, or services that are delivered at no charge or for a fee. A nonprofit can also deliver services or products for a fee that are UNRELATED to its mission. In this situation, the nonprofit should consult a lawyer to determine if there are certain tax consequences such as unrelated business income (UBIT), possible loss of tax exempt status, “commerciality doctrine” issues, and the like.
Before an organization begins the business plan, a feasibility study should be completed to determine if the business concept is solid. Would it be possible? In the feasibility study the organization gets the answers to these questions:
• Who is your target market?
• Do they want:
o What you (want to) provide?
o When you (want to) provide it?
o Where you (want to) provide it?
o How you (want to) provide it?
o At the price you (want to) provide it?
The only way to answer those questions is to ask the people in your target market – through individual phone calls, through written or electronic surveys, through focus groups. It is not safe to make assumptions of the answers – it is very important to ask before beginning a new project or organization and then continue to ask on a regular basis.
It is also important to research the product or service’s field or industry:
• What are the trends – i.e. do more people need and are buying this product or service?; if it is government funded, what are the budget implications at this time? How will the trends affect the organization’s plan?
• Is the field or industry growing or declining?
• What characterizes success in other organizations providing the same service or product? What makes the competition successful or not?
• Are there laws or rules and regulations that affect the production, delivery, or other aspects of this product or service?
Once you have completed the feasibility study and believe that the new service or product can be successful, the business plan can be developed.
A business plan can take many forms, but the most important part of the business plan is the planning—that is, doing your homework (a large portion of which is done during the feasibility study); analyzing the market and your “customer;” developing a budget, making financial projections, and determining your break-even point; assessing those core competencies that your organization has to deliver the products or services and what gaps need to be filled; and developing a marketing plan and timeline to deliver the products or services.
The business plan is usually 25 – 50 pages long (not including appendices) although some will be shorter or longer depending upon the “business.” While there is no one format that a business plan must follow, below are some important parts of the business plan that should be included or addressed as you write your plan:
Part 1: The Executive Summary
The Executive Summary is one of the most important sections of the business plan, because it can often be the only part of the plan that a stakeholder might read. It should summarize and highlight the critical parts of your plan, providing a concise overview of the entire plan along with a history of the organization, or if this is a start-up organization, the rationale for beginning the new nonprofit corporation or service/project. It should include the reasons why you think your business idea (for the particular service/project or the entire new organization) will be successful. Although the Executive Summary is the last section written, it is placed at the beginning of your plan. It should be a summary (i.e., no more than 4 pages).
A. Contents of the Executive Summary
a. The Mission Statement. The mission statement briefly explains the purpose of your business.
b. Date new business is to begin and/or when the organization was founded and why
c. Description of the board of directors and the functions they perform
d. Description and number of employees and volunteers and main functions of key staff
e. Location of organization and where the services will be provided
f. Description of the services to be provided
g. Funding sources and plan for sustainability
h. Market research conducted – how the need for the service was identified, who is the competition
i. If an established organization developing a new service, a brief history of the organization
j. Summary of strategic plan if available
Part 2: Service or Product Line
A. Describe your service or product
B. What is the problem that your service or product addresses?
C. What are the goals for the service and/or product?
D. What are the objectives for each service or product?
Part 3: Market Research & Analysis
Conduct any additional market research not completed in the feasibility study. The market analysis should include:
A. The general state of the service sector related to your business
B. The documented need for this service or if there a new need that you are addressing, has there been a change in the community/sector/etc. that impacts the need for this service.
C. Conclusions gained from the market research
D. Description of the competition
E. What is the projected growth rate for this service;
F. who are the customers
G. Where is the target market located geographically? Neighborhood or community level, city, region, state, international?
H. Size of the primary target market – how many now, what is the projected growth
I. Why the (new) organization thinks it will be able to get a share of this market
Part 4: Organization & Management
A. Organizational Structure
a. Create an organizational chart along with a narrative description of what the chart means – who reports to whom, what are the primary duties and responsibilities for both board members and key staff
b. Include Staff Profiles – for ED/CEO and other key managers
i. Name; Position; Education; Unique experience and skills – anything that will support their ability to assist in making this project successful
B. If there are other positions needed but vacant now:
a. What skills/expertise are needed and why?
b. How will the gaps in skills/expertise be filled and when?
c. Will volunteers be used and if so, how will they be supervised?
Part 5: Marketing and Sales Strategies
A. Market penetration strategy – plans for service/product growth/expansion
a. Communication strategy – How will the customers know about the service?
B. Advertising Plan
a. What will be used to advertise the product? – brochures, ads, website, newspaper articles, etc.
i. Estimated costs to develop, produce and distribute
Part 6: Financials
A. Where will the money come from to fund the program, product, or service? (grants, loans, fees, etc.) How will the funds be used?
a. Prepare an annual budget for the first year of development and/or operations
i. Include all revenue and expenses
b. Prepare summary budget projections for the next three – five years
c. Include a cash flow projection
d. Include a list of capital expenses if relevant
B. Financial Data
a. If this is a new product or service for an existing organization, include at least two years of the following:
i. income statements
ii. balance sheets
iii. cash flow statements
b. Include a written explanation for any assumptions in your projections.
Part 7: The Appendix
A. The appendix section should not be included with the main body of your business plan.
a. The appendix may include:
• resumes of CEO/Executive Director and other key management staff
• letters of support
• details of market research
• relevant articles, publicity
• accreditations, endorsements, licensure when applicable
• copy of by-laws, state charter, 501(c)(3) letter of approval
• list of board members including affiliations
B. Keep track of all copies of your business plan. A distribution record of those who have a copy of your plan will allow you to update and maintain your business plan on an as-needed basis.
C. Consider including a statement on the front of your plan similar to the one below:
This document is confidential and proprietary. It may not be circulated or disclosed in whole or part without the written permission of the Center for Nonprofit Excellence. No representations or guarantees are made or implied. Plans and projections are subject to change. All stated amounts are approximate and estimated.