Business Planning for Nonprofits

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Business planning is a way of answering, “What problem(s) are we trying to solve?” or “What are we trying to achieve?” but also, “Who will get us there, by when, and how much money and other resources, will it take?” The business planning process takes into account the nonprofit’s mission and vision, the role of the board, and external environmental factors, such as the climate for fundraising. Ideally, the business planning process also takes into consideration the potential for changes in basic assumptions about the nonprofit’s operating environment. For example, many nonprofits rely on government contracts or grants. What if the particular sources of income that exist today change in the future? A business plan can help the nonprofit and its board be prepared for future risks, by answering questions such as, “What is the likelihood that the planned activities will continue as usual? or that our current sources of revenue will continue to provide this level of income? And what is Plan B if they don't?”

Narrative of a business plan

You can think of a business plan as a narrative - or story - explaining (ideally in a way that will make sense to someone not intimately familiar with the nonprofit's operations) how the nonprofit will thrive given its activities, its sources of revenue, its expenses, and the inevitable changes in its internal and external environments over time. According to Propel Nonprofits, business plan usually should have 4 components that identify: revenue sources/mix; operations costs; program costs; and capital structure.

A business plan can explain: what the income sources will be to support the charitable nonprofit's activities. What will be the types of revenue (sometimes referred to as "income streams") that the nonprofit will rely on to keep its engine running? A business can also take into account assumptions that exist today but may change in the future: Are there certain factors that need to be in place in order for those income streams to continue flowing? The plan should address both the everyday costs needed to operate the organization as an entity, as well as costs that are specific to the unique programs and activities of the nonprofit. The plan may include details about the need for the organization's services (a needs assessment) and about the likelihood that certain funding will be available (a feasibility study) or about changes to the organization's technology or staffing that will be needed in order to successfully advance its mission. Another potential aspect of a business plan could be a "competitive analysis" describing what other entities may be providing similar services in the nonprofit's service and mission areas. Finally, the business plan should name important assumptions, such as that the organization's reserve policy requires it to have at least six months' worth of operating cash on hand at all times. The idea is to identify the known - and take into consideration the unknown - realities of the nonprofit's operations, and propose how the nonprofit will continue to be financially healthy.  It's a "plan" after all - and the underlying assumptions may change.  If they do, then having a plan can be useful during the process of identfying adjustments that need to be made to respond to changes in the nonprofit's operating environment.

Basic format of a business plan

The format may change depending on the audience. A business plan prepared for a bank (to support a loan application) may be different from a busines plan that board members will use to help define their priorities in recruiting new board members. Here is a typical outline of the format for a business plan:

  • Table of contents
  • Executive summary - Name the problem the nonprofit is trying to solve: its mission, and how it accomplishes its mission.
  • People: overview of the nonprofit’s structure and who makes what happen
  • Market opportunities /competitive analysis
  • Programs and services: overview of implementation
  • Contingencies: what could change?
  • Financial health: what is the current status and where will the revenue come from to advance the mission over time?
  • Assumptions and proposed changes: What needs to be in place for this nonprofit to continue on sound financial footing?

What’s the difference between business planning and strategic planning?

A business plan explains the “who/what/how/where/when” and typically will answer questions such as: “Who are the nonprofit’s “customers?” “What is the geographic area for the nonprofit’s services?” “What other nonprofits are providing similar services?” and “What services does our nonprofit deliver that are unique?” A business plan is the action plan, identifying the tasks, milestones, and goals, but also identifying the potential for success and the potential risks ahead, given the nonprofit’s “competitive advantages” and the environment in which it operates.

The strategic plan takes all that the business plan has identified and answers “how” the desired results will be achieved, such as, “How will we accomplish all this with limited resources? What will we prioritize? How will we acheive more ambitious revenue goals?” Other questions that a strategic plan might answer include: “What needs to happen so that we can achieve success?” and “How will we measure success?”  More resources on strategic planning for nonprofits

Example: One finding from a nonprofit’s “business plan” could be the need to diversify financial resources. The strategic plan might then address how the nonprofit will diversify its resources, such as by enlarging the nonprofit’s individual donor base, and then drill down to identify how that will happen, such as through the tactic of developing an annual giving campaign; and further, how that tactic could be sustained, such as by identifying the cost of staff needed to support that activity on an ongoing basis; and how success in the annual giving campaign will be measured.

Tools for business planning

Resources

Join your state association of nonprofits for special opportunities, such as assistance with business planning, as well as strategic planning.

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