Friday, May 28, 2010

Business Planning in Nonprofits

A nonprofit organization needs a business plan as much as a for-profit company does. In either case, business planning is about charting a course toward success and sustainability.

I talk about integrated planning as a process with three activities at its core: strategic, program and business planning; the why, the what and the how. No matter how compelling the why, or how thorough the what, the how is the third leg of a three-legged stool: the other two are useless without it.

Business planning can provide a framework for examining and reconciling a large body of otherwise disparate information, such as:
• Market analysis (market conditions, competition, market share, program offerings, audiences, pricing)
• Business strategy (positioning, targeting, marketing, programs, competitive advantage)
• Business / financial goals (revenue model and projections, capital and program fundraising, investments, metrics for defining success)
• Resource requirements (personnel, facilities, technology, risk management, phasing)
• Organization structure

While in these areas there is clearly some overlap with the concerns of strategic and program planning (stakeholders, content, resources, organization), only business planning provides a rigorous mechanism for considering issues of revenue.

Some nonprofits have traditionally relied on fundraising and/or public funding for all of their support, while others have revenue from operations as well (fees for service, ticket sales, tuition).

Business planning may be required by public and private funders to assure that their money is being well spent. Increasingly, however, even nonprofits that have relied predominantly or exclusively on fundraising have been looking for opportunities to capitalize on the value of their resources, their expertise, and their name (or brand). They are finding that new revenue-generating services and programs can support their mission while also producing income to subsidize their established operations.

Examples come from many sectors:
• Social service agencies have started businesses to offer work experience and employment to some of their clients while also providing their own support (a copy shop; a culinary arts training program and a catering business; painting and landscaping services)
• Organizations have been founded to combine giving with partially self-funding community development (Bikes Not Bombs, Good News Garage)
• Some nonprofits have developed expertise that becomes valuable intellectual property that can be shared for a fee.
• Colleges and independent schools can use their brand and their resources (facilities, faculty) to develop summer programs or school-year non-tuition revenue programs.

Like any for-profit start-up, a new program requires serious attention to business planning to make sure that an apparent opportunity offers real promise, especially when there are significant initial costs. When there are a number of options to consider, financial modeling can facilitate evaluation and fine tuning, as well as providing benchmarks. For an overview of financial modeling, see the latest number of Critical Issues in Strategy Planning and Organizational Development.