Business Plan Guide for Not-For-Profit Organizations
GREATER BINGHAMTON CHAPTER 217
The material in this publication is based on work supported by the U.S. Small Business Administration under cooperative agreement SBAHQ-04-S-0001. Any opinions, findings, and conclusions or recommendations expressed in this publication are those of the author and do not reflect necessarily the views of the U.S. Small Business Administration.
Table of Contents
Not-for Profit Organizations are those business entities that fall under the provisions of the U,S. Internal Revenue Code, Section 501,(c) 3. This provision of the Code exempts certain organizations from taxation liabilities upon filing for this status with the IRS and filing, as required, annual financial statements. Additional filings with the various State Attorney General's Office may also be required. Funding in NFP's for start-ups. on-going operations, expansions, reorganizations and special programs by necessity require a Business Plan Sources of operating revenues from contributors, foundations and even commercial lenders will be reluctant to participate with the organization unless there is
a formal, well thought out plan showing how the organization will operate and achieve it's mission and goals..
To effectively conduct a NFP organization processes, a plan is needed. A good plan will assist you in market focus for your activity or service, anticipate future needs, monitor progress and allow proactive actions - not just reactive ones in a management context.
A business plan, if done correctly provides a management tool necessary to a successful attainment of program goals. Knowing where you are, where you are going and how you are going to get there are the core of such a plan. It is a road map for your organization's success.
If you have never prepared this type of plan before, SCORE can assist you in getting started. We can help in gathering the necessary data and the organization of it for your organization's use. With this analyses of strengths and weaknesses of your operating proposal, we can work with you so that you will have a useful and complete tool for running your organization and securing the funds necessary to that operation. Even if you have prepared such a plan before, we can still help in assuring a plan's completeness and applicability to your organization's needs.
After you have completed the first draft of your plan, you should take time to carefully review and analyze it to determine whether the plan is practical to implement, You should view this with an open mind to make sure that the negative you have identified do not outweigh the positives. It follows that if the negatives are dominant, you will have an uphill climb before you start. You must also understand that this type of plan is likely to be subject to change/revision in any functioning organization as circumstances dictate, thus requiring continual review.
Also, after the plan has been completed, identification of the processes required to attain the goals and objectives comes next. The specifics of This plan implementation need not be part of the plan and is optional. Effort must be directed at making the plan a dominant factor in the minds of staff and is considered whenever a business decision is made.
Advice in Plan Creation
As this plan is quite detailed to allow it's digestion at one sitting, it is suggested that it be approached , one section at a time. Multiple readings of each section, then movement to
the next section where new thoughts may be added as the plan develops. Secondly, start the plan with an outline. an example of this follows this paragraph. Modify the outline and information that you will provide for the plan as best meets your organization's situation.. Do this as you develop item by item, step by step, in development of your plan. Upon completion of the plan, re-review your plan against this guide and decide any required additions or deletions to the subject matter presented.
Organizing Your Business Plan
A common fault of Business Plans is that they are no organized well. Without a well thought out structure, even the most persuasive arguments can fail to convince the reader. Therefore, the first step is to prepare your plan in a logical sequence of steps. The following is a time tested approach for you to consider.
I. Executive Summary
A brief overview of your plan
II. Business Description
What are the functions of your organization to accomplish?
III. Market Overview
Define who are users, size of using population, market trends.
Quantifiable Targets of Service use.
V. Service Advantages
What elements of your services are superior in the market?
VI. Competitive Analysis
What other sources of your service exist, local, national an foreign?
VII. Market Strategy
How do you "reach" your users?
What are the mechanics you will use to provide your services?
IX. Organization and Management
Your functional operating structure and the management structure that supports it.
When will things happen?
XI. Financial Information
Proforma Balance Sheet and Profit and Loss Statement Cash Flow Projections
XII. Revenue Sources
Fund Raising Processes Grant Application Programs Charitable Giving
Commercial Lending (e.g. Line-of-Credit)
Annual Reports, News/Media Clippings, Photos, additional Financial Data
The Executive Summary should be written as the last item of the plan outline is completed. It should be a single page summary telling the reader why the plan was written and the proposed directions the plan is taking including all recommendations and conclusions. In addition, the following should be addressed.
- A quick two or three sentence profile of the organization followed by current problem items and operational trends.
- An overview of the current position of the organization as to geographical services, societal segments served, etc.
- Briefly describe how the organization will proceed in attaining its' vision and goals, I is the purpose is to give the reader a sense of the organization's direction.
This section provides information that will familiarize the reader with the environment of the organization, its' services and work directions. This will deal with the organization's Mission Statement, its' visions and goals. A mission statement should be viewed as a dynamic document subject to future change and revision due to changing environments, organization core competency and the need for flexibility.
Frequently this is the weakest part of many business plans and reveals that the marketing homework has not been thoroughly done. In this section you must present sufficient evidence to prove, and convince the reader, that there is sufficient demand to support the services being proposed. It is not enough that you believe in what you organization does. This is the section in which you must first identify the need for your services. Also you must show how these activities meet this need. Finally, you must show how your activities can meet a specific need that can be funded thorough user payments, public
sources, charitable grants, donations, etc. Ways that these proofs may be presented are:
Present figures and factual information on the following questions:
- Who are the primary clients served?
- Is there a dominant market segment that your organization addresses?
- Are there other market service segments that should be developed?
- What is the general economic environment in which your organization operates?
- Where will the service needs of your markets be in 3 - 5 years in the future and how available will funding sources be and do population, age or other demographics support your future plans?
Describe the impact of similar organizations that are, or will be, providing similar services or functions in the market. Remember, even new services will have competitors in some manner. include the following, and limit your analysis to top competitors. Duplication of services in a limited user environment limits financial alternatives to funding NFP organizations. Do you plan to increase your market share from competitors or form a new market niche?
This is the part of your plan where you address the strengths, weaknesses and opportunities facing your organization. It is a realistic appraisal of threats and issues facing a NFP entity.
- Strengths and Weaknesses
An assessment and conclusions regarding your organization's performance, or lack thereof.
- What are the strong points of your organization and what are the contributing factors to them?
- What are its' weaknesses and what causes them?
- Opportunities and Threats Analysis
An analysis of outside factors influencing your organization.
- What governmental regulatory policies or legislation, current or pending, impact your
- How do current economic forecasts effect your operational environment? Include
comment on both favorable and unfavorable conditions and long and short term runs.
- What changes, current and projected, do you anticipate in client needs?
- What are the developments and professional trends that will impact your organization?
-Include both favorable and unfavorable impacts and how you expect to meet them. -
Issues and Risks
This planning element is the balancing of risk/opportunity to set marketing strategies. Issues have risks and the address of these risks should yield organizational prosperity.
Many issues are the result of the analysis of the opportunities and threats and the strengths and weaknesses. These issues set the stage for the development of the goals and objectives and lead to marketing strategies.
Identify the issues that have to be addressed upon completion of these analyses. Determine the risks associated with these issues and decide how you will meet or ignore them.
Objectives can be easily misinterpreted by employees and lead to serious problems. For example, a certain objective might lead an employee to sacrifice of quality output just to meet that objective. This emphasizes the need for clearly defined objectives. Everyone in the organization must understand what the organization is trying to accomplish and what employee responsibilities are to that end. Certain terms should be defined to clarify their relationship within the context of the plan.
Objectives - broad statements of the purposes of your organization. Goals - A subgroup of quantified objectives that have a time limit.
Goals and objectives should be specific as to their intent, they must be relevant and contribute to the overall plan. They must be timely thus addressing issues that are confronting your organization within the context of the plan.
Categories on which organizations focus when establishing goals and objectives.
Human Resource Objectives
Common Objectives, all of which will fall under one or more of the Objectives Categories.
Revenue Stability/Funding Programs
Market Share Growth
Service Delivery Systems
The general rule for setting NFP financial objectives is to look at the ability to fund the costs of providing the services defined in the organizations goals and mission statement. The focus on the level of funding is important because it is the principal factor allowing the organization to exist and grow.
Typical financial objectives are:
Produce a revenue income level to cover costs of services.
Produce a surplus over service costs to permit growth and expansion.
Develop and use a financial plan that defines revenue sources (eg. Grants, Fee Income. Charitable Donations, Government Appropriations and Programs, and the like).
Monitor and control costs to efficiently and effectively meet goals.
Note: Each NFP organization requires different objectives due to variances in operating requirements. As long as approaches are reasonable and within economic structure of individual environments in which the organization practices, they form suitable benchmarks to measure that entities' performance.
Marketing objectives are an interpretation of the Financial Objectives which lay a foundation for Market Strategies. The Marketing objectives help in the attainment of financial objectives. The organization will only achieve the plan by concentrating in areas it knows will cover operational costs and open opportunities for the future.
Typical Marketing Objectives
Achieve a revenue from external sources at least equal to operating costs
Facilitate expansion of the service base by a specific percentage.
Increase Grant/Appropriation/Donation revenues to cover economic market assess ion
Financially provide for and improve activities to insure quality of services.
Human -Resource Objectives
These objectives refer to issues regarding people and their working environment. Some of the issues leading to objectives that take into consideration, the employee might-be as follows:
-improvement of quality of work-life.
Career path programs
-Formal compensation programs relating to employee performance/ contributions. Employee Benefit programs established or improved_
Programs to improve employee performance effectiveness/productivity.
Should be time specific measurable items. Goals reduce objectives to the next level of interpretation. They provide the organization with the paths required to solve -problems and accomplish tasks. The major categories of finance, marketing, human resources and operations considerations should be broken down into sub-groups. These will define goals. Make a sequential list of steps to be taken, with corresponding timetables, to show how your overall plan will reach the primary objectives.
This section describes the marketing strategy you will use to achieve your objectives. This is essentially defining "how to do it". You start with an assessment of the market and your capabilities to meet those needs. How do your capabilities set your NFP services apart from other similar organizations. Following are important considerations in developing strategies. Market trends, your competitive status, voids in the market you might capitalize on, market niches, cost considerations, advertising, public relations and quality of service when taken as an -interrelating group, serve as the definition basis for strategy pursuits. Foe example:
- Detail the steps in your game plan for attaining your marketing objectives. - Define your NFP's
- List strategies for positioning in the target market.
- Common marketing mix questions relevant to strategy foundations.
Service - What are the services that will be emphasized by your organization's
marketing arm? 1 your organization going after service applications in government
associated areas, other institutions, the commercial segment of the market, etc.?
Place What-geographic areas or -market -segments will -you -serve? Will you Expand
these in the future? How Would you `do this? How would you design/create services in other locations.
- Price - What pricing structure for services will you use?
- Promotion - How is your organization going to market itself?
- People - What professions, talents, sensitivities to people will be required of the individuals providing your services?
This section will describe how the organization will provide the services or activities established. Consider the following:
- Location and Space requirements
- Where is/are located?
- If it is only proposed, where is the location for which it is planned? - What costs are associated with your facility requirements? - What type of space is required and how much.
- What unique requirements are needed?
- A breakdown of the different types (eg., percentages of Office, Working, Storage,etc.)
- What are the regulatory environments required? - Can zoning requirements be met ? - Parking and access requirements.
- Equipment Requirements
- What are the types of equipment/furnishings needed for operations? - What are costs associated with operational needs? - Any special licensing or certifications required? - What are the operating costs/depreciation costs of equipment?
- Personnel Requirements
- What skills, professional certification, experience factors are needed? - How many of each type?
- What is the availability of requisite personnel?
- What are prevailing wage/salary levels of needed personnel? - What training is required?
- A roster of personnel requirements and dates they are needed?
- Is organized labor a factor, and if so, what are the expected impacts?
How will your organization be structured to provide your services addressing functional breakdown of activities, fixed and variable expenses current and projected and management structures to accomplish both. Describe the following:
Explain how you are organized with a brief description of each functional activity therein. Indicate lines of authority, expected spans of control and authority and functional interrelationships. Include descriptions of Board of Director members, committees, Board Officers and Charters of a NFP entity.
- Key Managers
Through biographies of the management staff, demonstrate skills, experiences, and accomplishments, professional attainments applicable to assigned positions.
- Management Development
- Identify areas of the management group that should be targeted for improvement and the steps and times to complete to accomplish these plans. - Compensation Programs
- Describe the organization's compensation philosophy and the steps in place to implement these actions as the organization is started or grows. - Board of Directors
- Describe the Board members, their individual roles in supporting the Board activities. Detail the individual capabilities and backgrounds that serve to attain the organization vision and goals.
Prepare a schedule that details the major milestones in the NFP organization's plan for the next three to five years. This may be done through listing and time sequencing the expected milestones or may be presented in chart time-line format. Include planned service introductions, deletions and modifications. These should address management events, facility changes, marketing strategy direction changes, regulatory change impacts and changes to client base.
The foundation for the plan is set by the goals and objectives, the direction is provided by the opportunities analysis and how the plan will be achieved by marketing strategies. Financial analysis ties it all together. The feasibility test of a plan is its financial justifications and the practicality of conceptual ideas.
Because business plans may have a wide readership, the financial information contained in this section should be carefully tailored for each segment of its' audience.
Common types of financial information used in such plans are:
Pro Forma Balance Sheet Profit and loss statement
A Projected Income Statement Operating annual Budget Cash Flow Plan
- General Financial Overview
This overview is a summary of the financial status of the organization. It might be extensive or a brief sketch of current operations.
A general financial overview may be presented with specific information or in general terms. Ideally, current financial statements such as the Profit and Loss Statement along with a Balance Sheet should be presented. Some plans should also include Cash Flow Statements. For NFP's financial resources are critical to the description where operating capital will be obtained. Other areas may be presented as they support the organization position.
- Pro Forma Balance Sheet
This document in accounting means financial statements or conclusions based on assumed facts. This shows the financial strategy of what money is to be spent where.
pro forma financial statements are constructed to show "what-if 'situations in your organization. Note: Here, as in the following sections, the use of computer spreadsheets make the preparation of such statements an easy task.
- Income Statement Projection
This forecast takes into account all realistic economic variables that makes this a model of the organization's expected operating results. This forecasting may be done on a time period basis - week, month or quarter - as best describes the organizations needs. It looks at the relationships of costs, salaries, profit margins, etc. With the assistance of an accountant assumptions are made as to inflation and any other cost increases. A 'what-if' scenario for the modeling is extensively used in this process,
- Profit and Loss Statements
This statement is a standard measure for all organizations. If your organization is already operational you should have up to three years of actuals available. I f you are in a start-up mode you should create projections for a 1 to 3 year period. Again, an accountant may assist in this preparation. The Income Statement shows the revenue or income, the expenses and the profit or loss expected to be incurred that in turn, provides an overview of operating results. and where, as an organization you stand.
- Detailed Budget
This establishes an operating plan showing the expected costs to accomplish the tasks required to accomplish your established goals. It allows thorough evaluation of projected expenditures needed to accomplish operating goals.
- Cash Flow Projections
This tool in some ways is much like a profit and loss statement, It adds, however,
the interrelationship of revenue against expense on a time sequenced basis - week, month, quarter. It is used in determining break-even points for an operation. and allows for planning to meet cash deficits and how such circumstances can be quantitatively addressed.
In the NFP organization there are significant differences in the sources of operating revenues. A principal difference lies in the fact that revenues are not intended to make profits, but rather are solely pointed toward the financial support of the NFP functions. The following list explores these sources.
- Organization Memberships
These are essentially fees charged to members of the organization for various
services rendered. as a member, Certain privileges are provided in consideration of these "dues Paid". Memberships may be open to the public or may be restricted to a professional group, or the like.
- Charitable Donations
Funds may be acquired through "fund raisers" taking many different forms. These consist of direct request for donations on a periodic basis.
- Foundation Grants
Requests for Grants may be made to organizations that have been founded for the purpose of supporting certain NFP activities. These require applications where the requesting NFP must show capability to render it's service(s) and insure any grant monies are appropriately applied to designated services.
- Endowment Funding
Some NFP organizations have established endowment funds that contribute to the NFP a portion of investment earnings on donated funds. Controls on such considerations as invasion of the endowment principal are closely controlled.
The above are examples. other areas such as United Way contributions to the NFP as well as Government Block Grants or Social Services payment for services rendered also come into play. Each revenue source must be identified in an organizations, business plan, to include borrowing/interest costs for such business options as line-of-credit usages and the like. All operations of a NFP are subject to revenue flows form such sources which may seriously limit the scope of many activities.
The exhibits/appendices to a business plan provide a place for additional documentation that might be helpful in the decision making process. It is plan author's to decide on any additional information that might be critical to telling the organization's story.