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True
or False: “Business planning is for businesses, and strategic planning is
for nonprofits."
Be
honest. When you first heard the phrase "business plans for
nonprofits," did you think, "We don't do that"?
Many people think that businesses do business planning, and nonprofits do
strategic planning. Strategic planning remains a core element of capacity
building. State Associations of nonprofits report that strategic planning
is perennially one of the most popular educational programs they offer.
Funders often want to see a strategic plan along with a grant proposal.
But increasingly, we’re hearing executive directors say to one another,
“Do you have a business plan?” Are business plans for nonprofits becoming
the new hot thing? And are they replacing strategic plans – simply by
adding dollar signs?
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Business
planning is not the same as strategic planning. Ideally business planning
will inform and improve a strategic planning process that keeps evolving.
Business planning provides a sound financial context for the planning
process and forces us to look at our nonprofit in the context of a
competitive environment. It is hard work because it grounds big picture
ideas in reality. Understandably given the option we might prefer to
paint a canvas with a broad vision and fill in the colors, rather than
first determine what it costs to buy the paint and canvas, and how to
price our painting. (It’s much more fun to paint the picture and let
somebody else figure out whether it will sell and for how much!) The
problem for enthusiastic and inspired artists (as with board and staff
members) is that the canvas gets bigger and bigger – but when the
masterpiece is finished, there might not be a market for it.
Your
nonprofit is in the business of something, whether it’s
recycling computers, helping veterans rejoin the workforce, or preserving
open space from development. And in order to pay for talented employees,
that new website you dream of, and the internet connection that makes it
work, your nonprofit needs cash. The problem is, assuming your nonprofit
is like many others, it’s tempting to continually add new projects or
improve existing programs to meet changing needs in the community. Just
before a nonprofit launches that new program or makes the necessary
adjustments, that’s the time to stop and ask, “How much is this really
going to cost? And how will it be paid for?” The question should even be
asked for services that clients pay for -- or that are paid by
third-parties: “Are all the costs of the program paid for?” What we’re
hearing is that many nonprofits have not calculated the full cost of
running their operations. Consequently, the revenue received, whether
through donations or fees for services (or a combination) might not cover
100% of what it costs to deliver those programs. Private philanthropy is
concerned about this funding gap and the strain it puts on charitable
nonprofits. The Donors
Forum has convened a community of practice on the subject of
overhead, bringing together funders and nonprofits to recommend how
nonprofits can more easily identify and articulate the true cost of their
work, and how grantmakers can become educated about the failure to pay
full costs, as well as help nonprofits understand how to calculate the
true cost of delivering services.
In
today’s challenging economy, the severe consequences of failing to engage
in business planning is laid bare when cash stops flowing. The cash flow
crunch is a concern for a huge number of charitable nonprofits. The
Nonprofit Finance Fund’s 2012
survey found that only 43% of nonprofits surveyed had more than 3
months of cash reserves – and many had less than one month. Nonprofits
that continue to focus exclusively on what they do, instead of also what
it costs to do it, will find themselves at risk of closing their doors
for good. Here is just one
example of the need for nonprofits and board members to focus
strategically on business models: a 30 year old charitable nonprofit,
dependent on donations to pay the rent and stay afloat, is hit hard by
the recession when donations dry up. If the nonprofit closes its doors
the community’s poor and disabled will be without access to medical
equipment, such as wheelchairs, walkers, and oxygen tanks. For 30 years
the nonprofit has collected donated equipment, refurbished it, and
trained its new owners how to use it. For free. Now at the brink of being
forced to shut down, the group’s executive director, reflecting on what
happened, explained his mind-shift towards being more business oriented:
“We’re not about money, but we have to be right now.”
A
solid business plan will take into consideration not only the “vision”
and the strategy for how your nonprofit will address needs in the
community, but also how everything your nonprofit does fits within a
competitive landscape, and how it will fund its activities in a
cost-effective way. Done well, business planning is very comprehensive –
and requires time. An outside consultant may be helpful to move the
process along. The CEO, key program staff, and a few board members are
usually tapped for the business planning team so that multiple
perspectives inform the analysis of all aspects of the nonprofit’s
operations: from mission delivery (programs, services, advocacy) to
physical and human resources infrastructure, and marketing, to
communications and fundraising activities. A business plan might also
include funding projections, and address risk mitigation as well as how
outcomes will be evaluated (and the associated costs).
The
advantage of having a business plan in place – especially when an
attractive new idea presents itself - is that some ventures,
partnerships, or projects may strategically fit the mission and perfectly
support the vision – but may not be successful financially. With the
discipline of a business plan as the “enforcer,” it makes it easier to
prioritize the activities that make the most financial sense, and to make
hard decisions, such as stopping a program that offers little ROI. As
champions for our nonprofits’ missions it is no longer enough to know
deep in our bones that “the mission is good.” Instead we need to help
boards and staff ask hard questions about money, so that the ability of
each charitable nonprofit to deliver its mission into the future is
protected. We encourage your nonprofit to take a look at the resources
highlighted in this newsletter and on the Council of Nonprofits’
website, and we hope that when your nonprofit engages in this
process, business planning will feel much more like painting a
masterpiece than counting pennies.
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Coming
soon - a new look for this newsletter and the National Council of Nonprofits
This
webinar is offered free of charge thanks to generous support from 
Tools
for business planning, creating a theory of change, a case for support,
and building a revenue plan (for purchase from Social Velocity)
Congratulations
to Valerie Lies, President & CEO, Donors Forum, and Ann Silverberg
Williamson, President & CEO, Louisiana Association of Nonprofit
Organizations, as well as Tim Delaney, President & CEO of the National
Council of Nonprofits, for being named to the 2012 NonProfit Times Power
& Influence Top 50
list.
The
National Council of Nonprofits provides information about the failure of
government to pay the full costs of services both on our Government-Nonprofit
Contracting website and in Nonprofit Advocacy Matters, our
bi-weekly newsletter on public policy and advocacy matters affecting
charitable nonprofits. An upcoming edition of Nonprofit Advocacy
Matters will include an update on federal reforms affecting indirect
cost reimbursements. Subscribe
today so you won’t miss the latest on this important issue.
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