This same radical concept can also be applied to starting and running a nonprofit business. In other words, the most high-impact nonprofit organizations reach this level of success by working with and through others to achieve more than they ever could alone.
The secret to their success lies not only in their passion but, more importantly, in how great they mobilize every sector of society — government, business, nonprofits, and the public — to be a force for good. Even the most successful nonprofits started small, but simply having an idea is not enough. It’s vitality important to set up a strong foundation and a thorough business plan in the beginning.
Nonprofit business plans have several different features and quirks that you’ll need to include to receive funding and having a strong passion to help your community is only a fragment of what it takes to run a not-for-profit organization. Founders need a way to connect their passion to an actionable strategy to put their ideas into motion.
A business plan is the bridge between a mere concept and an actionable strategy. The process of business planning is at times even more important than the plan itself as it forces your team to assess every aspect of your industry and often alters your team’s decision-making process. Before starting a nonprofit, there are a lot of decisions that need to be made.
Before you begin:
Writing a business plan helps management work through these questions and discover if a non profit is the right direction for your organization. By the end of the process you will have a blueprint outlining your 501(c)’s mission, product/service, and performance guidelines that you can communicate to potential donors.
Since the goals and audience of a not-for-profit business are quite different from those of a for-profit company there are several features you will have to change when writing your plan.
1. What’s the organization’s mission?
An important contrast between for-profit and nonprofit business plans is that 501(c)s focus more on the mission or goal of the company. Unlike for-profits that need to emphasize the bottom line, not-for-profit companies must emphasize the mission and values of their idea.
Donors want to know how you plan to help the community. If your mission statement does not demonstrate that your purpose is to assist your community by meeting a specific need, then donors will be hesitant to contribute to your cause.
The length of your mission statement can vary in length and detail, but should try to address some of the following:
- Who is it that you are trying to help with your product/service?
- What sets you apart from similar organizations?
- How do you want to be perceived by your community?
- What are the principles you hope to instill in your community?
- Where do you see your organization five years from now?
As it is one of the most important sections of a nonprofit business plan, the mission statement is often added in the first or second page of the plan. The goal is to grab the attention of prospective donors with a compelling mission statement that clearly defines your nonprofit’s actions.
Here are 5 examples of mission statements from some of today’s most influential nonprofit organizations:
TED: Spreading Ideas. (2 words)
Smithsonian: The increase and diffusion of knowledge. (6 words)
USO lifts the spirits of America’s troops and their families. (9 words)
Livestrong: To inspire and empower people affected by cancer. (8 words)
Invisible Children: To bring a permanent end to LRA atrocities. (8 words)
2. Who will be involved?
The emphasis of a nonprofit’s charitable work typically targets a group of people or a particular community. For this reason, a variety of individuals have a vested interest in this work, and it’s these exact people who are vital to the success and sustainability of the organization.
When these people decide to get involved in the work, they are referred to as stakeholders. There are many ways that stakeholders can help nonprofits reach their objectives. Stakeholders can also be other groups, organizations, or individuals who are affected by the achievements of the nonprofit.
Effective management requires satisfying these stakeholders whose support is essential to the overall success of the nonprofit. There are many benefits to building a solid support-base because nonprofits, in essence, are organizations that are build on the back of others passions, often with little financial gain.
Linking with these key individuals or other organizations provides an important opportunity for both to come together for one purpose in making a difference. They are also then able to share each others resources and help prop each other up in ways that could be difficult on their own.
The clients of the nonprofit act as stakeholders as well. If they receive a quality service, they are very likely to spread the word. This free publicity is the fruit of generous and effective aid given by the organization and will help promote their work into the future.
3. What is the marketing strategy?
For the marketing section of a nonprofit business plan, it’s important to include two marketing strategies. Unlike a for-profit business, a nonprofit has two sets of customers–the target market and those who will be contributing time and money to your cause.
Just like a for-profit plan, you have to explain how your company will address the target market and effectively promote your product/service to your customers. This section should be written as it would for a for-profit business.
Your chances for successful fundraising always begins with people who have already contributed to your organization and just behind them are the people who have donated to similar nonprofits to yours. The ultimate goal of a marketing strategy for nonprofits is to increase this ring of donors to extend out and convert the outlining potential donors into actual donors.
This requires fostering good relationships with more and more individuals. Your staff, your friends, and all the stakeholders involved in the nonprofit have the ability to bring in more potential donors by identifying those in their own circles who could be interested in your mission.
The second part of your marketing plan has to explain how you plan to reach the necessary funding levels to operate your business. This should be written as a subsection within your marketing plan. Lay out your strategy on how you will raise money and pique the interest of new donors to your cause. Here are some things to consider when writing this section:
- How will you personalize your messages with potential donors?
- How often will you send fundraising appeals?
- What channels will you use to communicate with donors?
- How will you recognize donor generosity? (plaques, special events, newsletters?)
Finally, remember when you are creating a marketing strategy for donors, your goal is to get donors inspired about your cause and eager to take action.
4. What are the funding needs?
Nonprofit plans also differ when it comes to the financial statements. Within the Pro-forma statements, terms may differ with a non-profit business plan. For example, in the balance sheet “owner’s equity” becomes “net assets” because 501 (c)s do not have commercial owners.
Although the general purpose of each statement remains the same, you may find that the names of each statement tend to change. Another point of difference on nonprofit financial statements is the separation of assets. On each financial statement your assets should be broken down into three categories.
Unrestricted assets are donations that are made without any limitations on usage or time. Obviously these are the most favorable assets for non profits as they allow more freedom in how they use the funds. These assets usually come in the form of membership fees and regular fund appeals.
Temporarily Restricted Assets:
Temporarily restricted assets carry specific limitations on time or usage. It is often the case that nonprofits receive donations that come with various stipulations. Temporarily restricted assets usually come from grants or donors who support a specific program. Once the donor’s stipulations are met, the asset can be moved to the unrestricted assets section.
Permanently Restricted Assets:
As you can probably guess, permanently and temporarily restricted assets differ in the length of the stipulations, as permanently restricted assets do not expire. The most common assets of this kind are donations of real estate.
Donors will stipulate that the land be used for a specific purpose, but restrict the nonprofit from selling it for capital gain.
The reason for separating your assets is to present a clearer picture of the real liquidity of your business. By separating the non-liquid and liquid assets, your team will have a better understanding of the resources at your disposal for day-to-day transactions.
Statement of Functional Expenses
Nonprofits in the U.S. are required by the GAAP to include a statement of functional expenses in their business plan. Functional expense statements classify a 501 (c)’s expenses by how they are allocated.
Most businesses breakdown their expenses into program expenses, fundraising expenses, and expenses on management and administrative activities. This statement is important for donors because it allows them to observe whether the nonprofit is properly allocating its resources.
5. How will you raise the required capital?
Unlike for-profits business that can promise their investors returns on their investments or even future profits to look forward to, nonprofits have little to leverage in means of financial incentives that would otherwise be used to attract investors. So, how do they get the cash that they need? They ask for it.
This is referred to as fundraising. Fundraising is an integral part of the continuation and growth of a nonprofit organization. There are two main principles of effective fundraising: focus and simplify.
If a small nonprofit was pursuing every conceivable fundraising opportunity, they are in effect diluting their efforts and could be losing focus on their mission. There are three main areas nonprofits should be focusing their efforts for gaining capital:
At the inception phase of a startup nonprofit, they will mostly only be able to seek out individuals for charitable donations along with special fundraising events. Once they get the ball rolling and are functioning as a business rather than a startup, they can then begin to set their focus further out on the horizon.
They can qualify for specific, typically program-related, grants and also donations from philanthropies. In order to get to this stage of fundraising, nonprofits must begin appealing to the program officers who are responsible for making the donation decisions for these organizations.
Program officers look for a number of things: a good track record, proven success, and strong executive director. If these are in place, the organization can be more confident that their donations for the nonprofit will make a positive difference and accomplish their own philanthropic goals.
6. Will you be able to sustain your model?
The sustainability of a nonprofit is the central goal for the founders and stakeholders. A sustainable nonprofit means it will have the opportunity to maintain itself over the long term which will perpetuate its ability to fulfill its mission.
Unfortunately, financial struggles are a harsh reality for many businesses, and for nonprofits, sometimes it can seem like an uphill battle. Even nonprofits with excellent programs can run into problems with funding, and in order for any nonprofit to reach a point of continual momentum, there are a number of behaviors it needs to adopt first.
Sustainability in the context of a nonprofit organization requires reliable financial support, leadership succession planning, adaptability, and adequate strategic planning for the future. In order for these to be possible, the first step is to make sure the nonprofit’s leaders fully understand what it takes to deliver their programs and services in terms of cost.
Geo Funders is a great resource for nonprofits looking to connect with grantmakers, and their main goal is to “support nonprofit resilience.” Operating a nonprofit will require a lot of communication with grantmakers, and organizations like Geo Funders aim to help streamline and organize this process.
One of their key pieces of advice is for nonprofits to ensure they are using their grant money on things that strengthen their organization. When they spend most of these valuable funds merely on delivering services, there is an unbalanced distribution of resources that are likely already limited.
“A key component of financial sustainability is the commitment of board and staff to financial management that includes timely review of financial reports and advance planning,” said a report by the National Council of Nonprofits. According to them, one of the fundamental building blocks that hold up successful nonprofits is the approval and communication of an annual budget between the staff and the board members.
The approved budget not only serves as a guide for the financial activity ahead, but by having a space for open communication, the organization as a whole can step forward together in order to more effectively reach their goals, financial or otherwise.