Table of Contents >
Part L. Generating, Managing and Sustaining Financial Res... >
Chapter 42. Getting Grants and Financial Resources >
Section 2. Creating a Business Plan >
Main Section - Introduction, what, why, when, who, and how. >
Creating a Business Plan | |
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Main Section |
Contributed by Bill Berkowitz Edited by Adapted from the work of the Massachusetts Office of Business Development |
A business plan? For community groups?
What's the connection between business and community development?
What's a business plan?
Why should you make a business plan?
When should you make a business plan?
How do you make a business plan?
A business plan? But we are nonprofit, all the way!
Yes, your primary goal is to improve the community. And yes, you are not out for personal profit. But "business" and community development can mix - and sometimes need to mix. This may seem obvious to many readers, but not obvious at all to some others. So before we get directly to business plans, a little explanation is in order.
What's the connection between business and community development?
- If you have a strong and effective community group, you probably want it to last.
- To make it last, you often have to pay the bills.
- To pay the bills, usually you need money in the bank.
- That money can come from your business operations.
Your business operations usually involve things you sell. Those "things" can be products - actual goods - or they can be services. There are endless possibilities. Just to get the ball rolling, see below for a few examples.
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"Selling Points": Some examples of community businesses
...Most of these are small operations. (Most businesses themselves are small.) It's true that nonprofit and community groups have also succeeded at much bigger ventures - child care centers, restaurants, and hotels are just three examples. But if you're just starting out, starting small is usually your strategy of choice. |
But is it ethical for us to sell products and services?
Yes, if it is done honestly, openly, and fairly. What is sold should be of high quality and good value. It should be fairly advertised and delivered as stated. The age-old standards of honest business apply.
And selling products and services can be more than ethically permissible. It can be the ethically responsible thing to do. You can sell something that people need, and actually help them, while they are helping you. That's what good business is all about.
And is it legal?
Yes, in a great number of cases. Here's a key fact:
A nonprofit group can make a profit.
Of course, the selling of products and services must comply with local laws and regulations. It's up to you to know what those laws and regulations are where you live.
Does this mean all nonprofit groups should go into business?
No, not necessarily. There are other ways to pay expenses and to ensure your financial sustainability, many of which are talked about in other sections of this chapter. Among them are grants (Chapter 42, Sections 4: Applying for a Grant: The General Approach and Section 5: Writing a Grant), fund-raisers (Chapter 46, Section 12: Designing and Implementing a Fund-Raiser), membership dues (Chapter 46, Section 17: Establishing and Maintaining a Membership Program), and in-kind support (Chapter 46, Section 11: Soliciting Contributions and In-kind Support). Your decision about going into business should depend upon what funding you need, what you have on hand, what funding options are available to you, and what your prospects for success are in each case.
To plan for your overall financial sustainability requires an overall financial plan; the details of this are given in Section 3 of this chapter: Developing a Committee to Help with Financial Sustainability.
But some business operations might be part of what sustains you, and be part of the mix. Your business operations can coexist with other sources of revenue. And if you will be (or might be) engaging in business, broadly defined, then you need a business plan. This Tool Box section will tell you how to create one.
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Of course, if you have few or no expenses, then business and financial planning will be less relevant to you right now. If you are in that category, it might still help to ask yourself: (1) Are we satisfied with the way things are going now? And (2) Would our group and our cause be better off if we had more money? We don't mean to prejudge the answers for you. But we do believe these are questions worth asking. |
What is a business plan?
A business plan is a written document that describes in detail what kind of business you intend to operate, how you intend to operate it, and why you believe it will succeed. It is backed with logical, factual and financial documentation. A business plan is similar in form to other types of plans you may have seen. However, "success" in this case is in large part defined by making a profit.
For independent businesses, which are not connected to a nonprofit agency or community group, a business plan is also a selling document, designed to convince outside lenders or backers to support it. You may not be seeking such backing right now. But you may still need to convince others that your plan is worthwhile. A good business plan can help you do so.
Why should you have a business plan?
- Setting your thoughts down on paper, and forming a plan, will clarify your own thinking (this is also true for most other planning situations).
- Your business plan will raise confidence in your business ventures among members of your own group.
- Because your business plan will raise confidence among potential outside backers (you might need a loan, or another favor; your backer wants to know you'll be worth the risk).
But primarily because:
- A business plan will increase your likelihood of business success.
"A major reason for [business] failure is lack of planning. The best way to enhance your chances of success is to plan and follow through on your planning." (David Bangs, The business planning guide)
When should you make a business plan?
- When you are seriously thinking about embarking on a particular business venture (and before you do embark)
- When you yourself are hazy about the details
- When you want expert feedback or advice on the specifics of your ideas (Your business plan will make it easier to get it.)
- When you need to attract outside grants, gifts, loans, supplies, other materials or moral support
How should I make a business plan?
There are many sources on writing business plans keyed to the for-profit world. For some good ones, see the Resources section. The section here is keyed to nonprofit, grass-roots organizations.
We'll cover three main elements here:
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I. |
What should the plan contain? |
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II. |
How should the plan be written? |
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III. |
How should the plan be packaged? |
I. What Should the Plan Contain?
Successful business plans have varied in format, but all have contained some basic ingredients. These basic plan ingredients are given below, in a suggested order. Don't hesitate to adapt them to your own situation, but try to stay fairly close to the mark.
1. A cover page. This should include a title, your organization name, and accessible contact numbers (phone/fax/e-mail/Internet). The title should reflect the nature of your plan; and it should also be phrased for maximum appeal to your intended audience. You want to capture audience attention and interest right from the beginning.
2. A table of contents. List each section of your plan, with appropriate page numbers. Tabs attached to the first page of each section can make it easier for the reader to find a specific section, and is cosmetically appealing. This table should be a maximum of one page.
3. An executive summary. This summary is usually the most important section of your plan. It should not be more than two pages long, and normally should be written last. Your executive summary will be a condensed version of your entire business plan. It is more than a simple introduction or background briefing. A reader of the executive summary should be able to understand what your business purpose is, what your plan contains, what your organization wants, and why it wants it.
If your executive summary is effectively written, it will:
- Communicate your organization's vision of the future
- Establish your organization's credibility
- Describe your product or service, and how it will be sold
- Explain and document the need for your product or service
- Inform the reader of key steps you plan to take
- If money is being asked for) Request an appropriate amount of money, and present a defensible case for such a request
- Make the reader want to read the entire plan
4. A description of your organization. Or, in other words, "Who are you?" More questions:
- What does your organization do?
- Where is it located?
- How big is it?
- How long has it been in operation?
- What are its goals and objectives?
- What has it accomplished?
- What financial support (if any) does it receive at the moment?
- What specific background does it have in selling products or services?
- And what is distinctive about your organization that sets it apart from everybody else?
If you wanted to learn more about another organization, these are probably some of the questions you would want to ask. This time, these questions apply to you.
5. A description of your management. That is, "Who is running the show?" If you are looking for outside support, this will be a vital element of your plan, because potential supporters will be investing in your organization's management and its ability to perform. So briefly describe your key officers (or members) and staff, including their qualifications relevant to this plan. If you have a board of directors, advisory board, or other professional or technical advisors, they can be listed here too.
This section of your plan, together with the previous one describing your organization, is the equivalent of your organizational resume. So within the constraints of truth, put your best foot forward. Your readers and potential supporters will be asking, "Can the current leadership carry out the plan?" And "Why does it think so?" Convince them.
6. A description of your product or service. Here's where you describe the product or service you want to sell. What exactly is it? What are the "product specifications?" Give the details, especially if you're trying something off the beaten track. (But, "giving the details" does not mean overloading the reader with technical jargon. Use layman's language when you can.)
Try to present some clear examples. If it's a physical product, and if you have photographs, drawings, brochures, catalogues, or other product renditions, so much the better. And if there are any special permits or licenses that you need, or regulations you must comply with, cite these too.
But it's also okay, and it's a good idea, to go beyond simple description. Perhaps your product or service has particular beneficial features - it's cheaper, it's faster, it's more durable. By all means, point these out. And if you can document previous customer support, provide endorsements, or cite experts who recommend its use, such testimonials should certainly be included.
7. Information about your market. Your reader will want to know (A) what your market is, (B) what research you have done to determine that market, and (C) how you plan to reach that market. Naturally, you want to know these things, too!
This will frequently be your most detailed section, because it spells out precisely how you intend to carry out your business plan. You want to be sure that you've done your homework, and that you can show others you've done it well. So let's take the above points in order:
(A) Your market means who your customers are. How many potential customers are there? Are they likely to grow in number; if so, why? And what kinds of people are they? What distinguishing characteristics do they have, demographic or otherwise? Where are they located? Your plan should answer these questions concretely. What you want to show here is that there are enough customers for your product or service to justify the sales levels you are projecting. (Those sales levels will be detailed later, but can be previewed here.)
If there is a particular part of the market you want to capture, say so. For example, if you want to sell embossed coffee mugs to hometown university students (which could be a good business idea), give the specifics. Spill the beans.
(B) Your market research means documenting why you believe your potential customers will become actual buyers. Intuition alone will not do the job, nor will faith, however pure. Here you need (and want) evidence. For example, what do you really know about student coffee-drinking habits? Have you gathered data on campus coffee sales? Have you observed students in the cafeterias, or done a survey, or conducted interviews? And have you tested out some prototype mug designs, and measured student reaction? This is the type of evidence we mean. The key point is if you have it, it will not only look good in your business plan; it will mean more mugs in your future.
(C) Your market plan means how you plan to reach your intended market. How can customers find your product or service? Where will it be sold - in stores (which ones?); by advertisements (where? when? how often?); at special events; by mail; by local or toll-free phone line; over the Internet; or through some combination of the above? Will there be discounts, contests, free samples, or tie-ins with other local happenings? Are there contingency plans, in case one marketing strategy fails?
In the coffee example, you might sell the mugs right by the cafeteria coffee urns, if you can make the proper arrangements. (Such "point-of-purchase" marketing is often highly effective, but you could certainly explore other means as well.) Once again, clarifying these marketing details will strengthen both your business plan as well as your prospects for success.
8. Information about your competition. It's rare that a totally new product or service comes onto the scene - and when it does, all too often there's no market for it. Much more commonly, your product or service has been sold before; there may be others nearby who are selling it now. These others are your competitors, and you should take them into account.
Your plan should profile these competitors, briefly describing what they provide. Then, if you can, you should also state and give reasons why your product or service is superior to your competition's. Otherwise, why should people switch? If you can't justifiably claim superiority, then at minimum you should document that there is enough customer demand for a new competitor on the scene - that is, you.
9. Details of your operating plan. Somewhere along the line, your product will have to be manufactured or acquired; if it's a service, someone will need to provide it. Your operating plan describes just how this will be done. It surely won't happen by itself!
An operating plan should answer the following questions:
(The questions below are phrased for products, but with a slight change in language, apply to services equally well.)
- What is the production process?
- Who produces it, and where?
- How many employees are needed?
- Is production occurring right now, or are matters simply in the "research and development" stage?
- Is production machinery involved?
- Is there a specific production location?
- How will production be scheduled? (If you acquire the product from somewhere else - coffee mugs, for example - who are your suppliers, and what are the precise supply arrangements?)
- Are there other subcontractors or vendors?
- What about outside production regulations?
- What about labor and maintenance considerations?
- How will items get to the customers?
- What about quality control?
- What contingencies exist in case things go wrong?
- How will customer satisfaction be assessed and assured?
- Is there a flow chart that summarizes and diagrams your operational steps?
This is a healthy list of questions. They may seem like more than you bargained for. But going into business is no casual affair. It is serious. And if you can't answer all of these questions right away, that can be a positive learning experience for you. It will stimulate you to think about the questions, and come up with your best responses. You will better see for yourself the value of putting together a business plan.
10. Financial information. Finally, we come to the dollars and cents part of your business plan. This is fundamental, simply because you want to make money from selling your product or service; so you need to present financial information to show how you will do it.
The specifics here include:
- Historical data from selling the product or service (if such data exist)
- Projections of how much income you will take in from selling your product or service; this is done for several different points of time in the future
- Projected sales costs, broken down by category, and also presented at the same multiple points in time (Your total projected income minus total projected costs will yield your projected profits for each time point.)
- Financial assumptions which underlie and justify your projections
- Cash on hand, and other assets available
- Additional cash needed, if any, to put the business into operation at your desired level.
If you are seeking a loan, this last item of course requires special attention. You need to demonstrate precisely what the loaned funds will be used for, justify your ability to repay them, and suggest and how and when they will be repaid.
There are two common forms used in presenting financial information, which respond to the points above. These are a Balance Sheet and an Income Forecast. Blank samples of each are provided under the Tools heading following.
The full details of presenting financial information, though, we will save for another Tool Box section. For more information, see the Resources heading below.
11. Timelines. Perhaps you have seen other plans with timelines or charts that specify each action step in the plan and when it will be completed. You can (and should) apply this thinking to your business plan as well. Creating a timeline - one that you believe in, and can fulfill - is an excellent planning discipline. Including a timeline - with key completion dates - can be a persuasive planning ingredient.
12. Appendices. Lastly, you may have other supporting information to present which strengthens your business plan, but which does not fit easily into the main text. (For instance, it might be too long.) Such information can be placed in an appendix to your plan. Examples here could include more specifics of management qualifications, letters of endorsement, or details of your market research. What other information might apply to your own situation?
These are your basic business plan ingredients. Now let's move on to how the plan should be written, and then presented.
II. How should the plan be written?
In eight words: simply, clearly, persuasively, honestly, and to the point.
You don't need to be a world-class writer, but you should avoid unnecessary writing mistakes. The "Guide to Writing a Business Plan" cited above lists ten of the most common writing pitfalls. Here they are, in paraphrased form:
1. The writing is unclear. It's difficult to understand.
2. The plan is too long. The writer does not get to the point, support it with facts, and move on. A caution: merely binding pounds of information together does not make for a good business plan.
3. The layout is poor, and/or illogical. Illustrations, product descriptions, and graphs are missing.
4. An executive summary is omitted.
5. There is too much technical jargon. The writer does not cut to the chase. What are the user benefits? Why would someone want to use the product or service?
6. There is insufficient detail on the qualifications of the proposers to implement the plan.
7. The market is not defined. And/or: Market research is not cited. And/or: A marketing plan is missing.
8. No mention, or sketchy mention, is made of the market competition.
9. The financial information given is not straightforward. It looks unorthodox, to put it politely. It resembles "creative accounting."
10. The reader is given no compelling reason to invest in the plan, or to otherwise support it.
Remember these pitfalls before putting your plan onto paper!
"Most business plans are not read from cover to cover.... Potential investors will initially invest only five minutes in reading it." (Joseph Mancuso, How to prepare and present a business plan. Emphasis in original.)
Is there a lesson for you in here?
III. How should the plan be packaged?
Rightly or wrongly, impressions are made quickly. And first impressions do count. Your reader will see your plan before reading it, and will form an impression without having scanned a single page.
What does this mean for you? It means your plan should look good. To be specific:
- It should be printed on high-quality paper, by a high-quality printer.
- As a guideline, its overall length should be about 20 pages, plus-or-minus ten. (Sometimes a shortened version of the plan can be created for other promotional purposes.)
- Color printing, when thoughtfully employed, can give you an edge; so can tasteful presentation graphics.
- What about binding? The completed plan should be bound according to the standards of your readers. Seek the advice of your local print shop - or get hold of some comparable finished plans.
- Of course, it should be checked more than once before going to print to make sure it's totally error-free. As a business person, you will be expected to pay attention to small details. Your plan should, too.
There's no need to go overboard, to spend a small fortune, or to add unwanted flourishes. (One presenter we know tied his plan in a red ribbon; his reviewer gently told him that was for amateurs.) But at the same time, to enhance your persuasive content and your clear writing, your plan should have an attractive appearance. It should look the way you'd want to look when going out for an important occasion, when you want to make an impression.
We encourage the reproduction of this material, but ask that you credit the
Community Tool Box: http://ctb.ku.edu
Resources
Bangs, D. H., Jr. (1995). The business planning guide: Creating a plan for success in your own business. (7th ed.). Chicago, IL: Upstart Publishing Company, Inc.
This book also includes many sample business plans, sample documents, and a very comprehensive listing of more specialized references. Upstart Publishing is itself one of the leading small business publishers in the U.S.; to request its catalog, call 1-800-235-8866.
Mancuso, J. R. (1983). How to prepare and present a business plan. Englewood Cliffs, NJ: Prentice-Hall.
Massachusetts Office of Business Development (no date). Guide to writing a business plan. Boston, MA: Massachusetts Office of Business Development.
One Ashburton Place, Boston, MA 02108
1-800-5-CAPITAL
Service Corps of Retired Executives (SCORE). This organization, with more than 500 chapters nationwide, provides free counseling, workshops, and seminars for small businesses. SCORE is sponsored by the Small Business Administration (see also below ). They can be found on the web at http://www.score.org.
Small Business Development Centers. These centers, scattered around the country, provide free expert assistance and training in various aspects of business management. Your state business office (a good resource in itself), your local university or library, or the Small Business Administration headquarters in Washington, DC can put you in touch with the one nearest you.
Work Group for Community Health and Development
at the University of Kansas.Copyright © by the University of Kansas for all materials provided via the World Wide Web in the ctb.ku.edu domain.