Understanding Business Planning
Business planning is not just for businesses. In fact, a business plan can be the blueprint for success for any not-for-profit organisation - allowing you to effectively anticipate potential problems and think of ways to counter them before they occur.
Your organisation may be operating on a not-for-profit basis, but in many ways it's still operating like any small- to medium-sized business. According to David Dandie, Head of Business Advisory and Training at Westpac, understanding this is the first step to running your organisation more effectively.
"People from not-for-profit organisations often don't think business planning is relevant to their situation," he says. "In fact, both types of businesses want to make as much money as possible. The only difference is what you want to do with it."
Dandie outlines seven key steps to success for any not-for-profit organisation:
Step 1: Planning
Fundamental to the health of an organisation, planning underpins all of the other steps. A business plan isn't something you do only when you want to borrow money, it's a blueprint for your success that needs to be regularly updated and referred to.
"You want to achieve a certain objective each year and this requires a certain amount of money. How do you know how much money you need? Where is this going to come from? How are you going to raise this much?" says Dandie. "Planning means anticipating the outcome and setting the steps in place to achieve that outcome."
Writing a plan will:
- give shape to your ideas
- help you organise your priorities
- help establish goals
- demonstrate to partners that you that you know what you're doing
- help establish responsibilities
- help you formulate appropriate questions and guide you towards the answers
- highlight gaps in your knowledge or understanding.
Step 2: Understanding financial statements
Your financial statements are like a snapshot of how your not-for-profit organisation has behaved in the past. "Your financials show how much money you have received, where the money came from, and, more importantly, where it all went," says Dandie.
"From this, you can improve the way you manage your resources and levels of efficiency - whether that be in sales, marketing, preparing applications to raise funds, providing the service to the community or by concentrating in areas that tie up your available cash flow. All of the answers start with your financials - if you know where to look."
Step 3: Understanding the relationship between price, volume and cost
If you're selling goods to raise funds, it's vital to understand how a change to one of these elements will affect the others. For instance, if you lower the price, how much will the volume of sales need to change for you to make the same amount of money? If costs go up, how many extra sales will you need to generate to cover this additional cost?
"If your rent went up by $20,000 a year, you may think you only require an extra $20,000 in sales to cover the additional cost," says Dandie. "In fact, if you were selling fundraising pens or badges for $1 each, but each one cost 60 cents to produce, you would only have 40 cents from every item you sold to spend on something else. To cover that extra $20,000, you'd need to sell $50,000 worth of pens or badges."
Funding is often limited and it is important to understand how making decisions around how to spend these funds will really impact your final outcome.
Step 4: Understanding cash flow
Cash flow is rarely a constant stream into any business, hence it is important to understand your seasons so you can plan properly.
Completing a cash flow budget will enable you to identify cash flow peaks and troughs and be prepared for them. How much cash will you need? Should you arrange an overdraft? Increase your fundraising activities at different times? Or put up the price of something you sell? This will allow you to be clear about the most effective strategies for your operation before the problem arises.
Step 5: Growing your not-for-profit organisation
Many not-for-profit organisations want to grow and be able to expand their community service - but there's such a thing as too much too soon. "If you haven't planned properly for growth, you may not be in a position to support growth," says Dandie. "For instance, understanding what staffing needs will be required, systems, processes, property, leasing, cash requirements, marketing materials should all be considered. Growth brings many benefits but consider the potential cost of growth to your business and how best to plan for these."
Step 6: Borrowing properly
"Take the time to research the possibilities, and tell your bank exactly what you're borrowing the money for so you can be sure you've found the best option," says Dandie. "Match the life of the loan with the life of the asset, don't use short-term facilities such as an overdraft and business cards to pay for long-term assets. These facilities are designed to cover short-term expenses, everyday operating costs." Banks provide different products to meet different needs so understand what your needs are and match this with the most appropriate solution.
Step 7: Transition and succession
This may not be such an obvious issue for a not-for-profit organisation as for, say, a family-owned enterprise, but it is an important matter even if it is expressed in different ways. For a not-for-profit organisation, problems could arise when staff or volunteers move on. "Transition is inevitable - what you need is continuity through change," says Dandie.
"It may be as simple as creating a hard copy of what each person does within the organisation to make a procedures manual. This will enable a newcomer to pick up where an outgoing person left off. You also need to develop a strategy so that everyone knows the objectives of the organisation and what they are all working towards."
Adds Dandie: "The fact is, no one goes into business or sets up a not-for-profit organisation because they like finance - but you still have to deal with it every day. The better you deal with it, the greater your chance of success."