Business plans appear in many different formats, depending on the audience for the plan and complexity of the business. However, most business plans address the following five topic areas in one form or another.
Structure Your Business Plan
Social Franchises Mostly Fail
A recent discussion on the npEnterprise Forum (the global social enterprise listserv) revealed several key points about social franchises owned by nonprofit organizations. First, and foremost, they rarely succeed in meeting the nonprofit’s goals.
Plans for Business-to-Business Ventures
While many entrepreneurs tend to think first of selling products or services to consumers, far larger markets exist in selling to other companies. Those sales, known as business to business, or B2B, roughly account for ten times the sales directly to consumers. So if you are undecided about what kind of business to launch, and are looking for larger, more consistent markets for selling your products, consider business to business. Continue reading “Plans for Business-to-Business Ventures”
Tax/Legal Topics for Social Enterprises
Some of the most complex and confusing issues around social enterprise involve legal and tax topics. Will we get in trouble if we do it that way? Do we have to pay taxes on that revenue? Which tax forms do we have to fill out?
Those concerns are made more difficult by the tendency of the IRS to obfuscate some of the issues (although they are getting better), and the high price to access quality legal advice from lawyers.
To help address that problem, the 7500 subscriber npEnterprise Forum listserv has included dozens of postings about US tax and legal issues for social enterprises, mostly from lawyers working directly on these issues. As editor, I recently compiled many of those postings into this legal/tax frequently asked questions file.
Here are the topics that currently appear in that FAQ:
- How much earned income can a nonprofit generate?
- Is income earned by a thrift or book store subject to UBIT?
- Are sponsorship and advertising fees subject to unrelated business income tax?
- What is private inurement – and why should social enterprises be concerned about it?
- Should I structure my new social enterprise as a for-profit or nonprofit?
- What about nonprofit – for-profit joint ventures?
- Can nonprofits do consulting?
- How should I structure my incubator?
- Should I set up a for-profit subsidiary?
- Is there an exemption from minimum wage if certain requirements are met?
- Do volunteers who sell our products have to claim this on their federal tax forms?
- Purchase an existing forprofit venture?
- In what state should we incorporate?
- How to set up a for-profit/nonprofit partnership?
I hope you will find this information useful. To my knowledge, this is the most comprehensive collection of legal and tax information about nonprofit social enterprises available anywhere on the web. While I am not a lawyer, I have found this collection useful as a general guide when exploring options for social enterprises. Good luck!
- Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
- Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
- Read my weekly blogs on Social Enterprise and Business Planning
Competitive Analysis
Since every business has competitors, every business plan needs competitive analysis — also known as competitive intelligence.
Direct competitors provide more or less similar products or services, such as coffee shops. Indirect or generic competitors provide different things, but customers will often choose between them. For example, nearby restaurants may offer different eating options, but compete for customers. Shall we do Chinese or Mexican tonight? Incidentally, another form of competition is for customers to opt out entirely. Shall we eat pizza at home tonight?
Here’s how to do competitive analysis:
Identify Major Competitors
Find out from potential customers how they currently get their needs met. What products or services do they already consume that your offerings might be better, cheaper, more convenient? Figure out the 3-5 “best” competitive choices for your target customers, and study them intensively.
Visit in person or online, shop anonymously, read up about them in the trade and popular press, talk to industry experts. Try to get a solid but objective handle on each firm’s strengths and weaknesses, particularly relative to your customers’ preferences. Determine the key success factors for this industry.
Prepare Competitive Profiles
Next, write a brief profile of each major competitor, summarizing information such as products, markets, facilities, pricing, marketing strategies, and finances. Carefully assess how each competitor might or might not pose a competitive challenge to your firm, and what you would do to overcome that threat.
Create Competitive Matrix
Finally, prepare a table or spreadsheet to summarize your findings. On the left side of the table, list the most important success factors — such as product reliability, customer service, capital investment, distribution channels, pricing, and so on. In the next column, weight each success factor so that the total adds up to 1.0. Then, in the remaining columns, list each of the major competitors. Working across the table, rank from one to five each competitor on each of the success factors, then insert a column to weight your rankings, which is obtained by multiplying the ranking by the weighting. At the bottom, add up the weighted values to create an overall assessment of which competitors represent the most serious challenges to your company.
Use this competitive analysis to help you decide how to position your business to compete (or cooperate) most effectively with your primary competitors. It’s not that hard if you follow these steps, or you can bring in a consultant to do this as part of your business planning process. More information at: https://staging.management.org/mrktng/cmpetitr/cmpetitr.htm
Good luck!
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For more resources, see our Library topic Business Planning.
- Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
- Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
- Read my weekly blogs on Social Enterprise and Business Planning
Do Foundations Support Social Enterprise?
Well, yes and no. They all want their grantees to develop “sustainability” strategies, by which they mean they want you to continue into the future without their money. So if social enterprise will help an organization diversity its funding sources and rely less on philanthropic support, they’re all for it. They like reading about it in grant proposals, and like even more finding out that you’ve started social enterprises that help you accomplish your mission and provide funding at the same time.
Will they then put money into starting social enterprises? Mostly not, at least directly. Sometimes they will provide small planning grants, which can be helpful but never enough to turn idea into reality. Sometimes they will look more favorably at a grant proposal which has an explicit sustainability strategy that includes social enterprise; such as project community and outreach efforts where the data collected will also become part of the market research for a future venture.
And in rare cases, where they already have a productive, long term relationship with a grantee, it can be demonstrated that a social enterprise is highly feasible (foundations are fairly risk-averse), and that project outcomes would exceed what their grant would otherwise deliver, foundations have been known to put real money into starting a social enterprise. But don’t count on it. It’s pretty rare.
Now, there are foundations that have supported social enterprises through Program Related Investments (PRIs), which tend to be low-interest, long-term loans and loan guarantees rather than grants, involve larger projects, and usually involve community economic development. Here’s some more information about PRIs, including a list of major funders who do PRIs.
Finally, in terms of new SE investment strategies, here’s a good article by Paul Lamb entitled The Rise of the Entrepreneurial Activist, in the Huffington Post, which lists some foundations that have supported social enterprise, usually focused on leadership training rather than venture start up funding. He also addresses some new startup funding strategies (for example crowdfunding), which might help some start ups. Good luck!
- Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
- Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
- Read my weekly blogs on Social Enterprise and Business Planning
Breakeven Analysis
One of the common challenges in business planning is that one often has a better handle on predicting expenses than revenues. It doesn’t mean you’re 100% sure about what your costs are going to be, but for many folks, when they start looking at sales, it’s a crap shoot. As a result, many business plans tend to “make up” revenue numbers to show a profit, confident that they’ll somehow get there. Most business plans I read present revenue numbers that are more fiction than good prediction.
Break even analysis is one way around this dilemma. For that, all you need are two numbers: estimated annual fixed costs (that one’s often pretty straightforward), and something called unit contribution. Fixed costs reflect those expenses that you’ll incur regardless of sales levels. It normally includes things like salaries and benefits, space, technology costs, accounting/legal/marketing, and so on. Unit contribution, on the other hand, represents how much of each unit or dollar of sales you get to keep — after subtracting all variable costs required to produce that unit, typically accounted for as cost of goods sold.
The basic break even formula is fixed costs divided by unit contribution. The result is the number of units that need to be sold to cover all your fixed costs. If you sell fewer units, then you lose money; more, you make money. An alternative version of break even analysis divides fixed costs by unit contribution percentage, which leads to the dollars (rather than units) that need to be sold to achieve break even.
Once you have that break even number, you can evaluate whether it’s practical to at least reach that level of sales. Be hard nosed about that. Compare it other businesses that you’ve researched. In many cases, this might be enough to demonstrate that your plan is not workable, as least as you have thought about it so far. Or it might just provide you with enough confidence that hitting that number will be relatively easy.
Either way, unless it includes revenue projections that are rock solid, every business plan should include some kind of break even analysis. Don’t leave home without them!
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For more resources, see our Library topic Business Planning.
- Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
- Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
- Read my weekly blogs on Social Enterprise and Business Planning
Do Unions Help (or Hinder) Social Enterprise?
As the social enterprise movement grows, enters new markets, and works with new employees, it’s discovering new partners … and new adversaries. One of those adversaries, according to some practitioners, can be unions. Unions of course exist to balance the excesses of power of management, and seek to protect the jobs and increase the wages of their members. Sometimes that can put them into conflict with a social enterprise, whose purpose in launching a new venture might be to provide training and jobs to the unskilled or who are recovering from drug abuse, incarceration or homelessness.
For example, there have been situations where unions have initiated legal challenges to a successful, growing social enterprise, which has demonstrated impact in training and employing those individuals. And these individuals would not have been hired into a unionized workforce because of those employment barriers. Nevertheless, because of concerns of loss of jobs of their members due to this new competitor, unions have filed complaints with the National Labor Relations Board, costing the social enterprise huge legal fees and reducing its ability to create jobs for those at the bottom of the economic ladder.
So are unions a problem for the social enterprise movement?
The ~7500 subscriber global social enterprise listserv I manage, the npEnterprise Forum, recently discussed this topic. Some of the comments provide insight into this question. One person noted that, after a recent merger, their staff who provide training to transitional jobs participants work under a collective bargaining agreement. The manager reported that going from pre-union to union affiliation “hasn’t been too noticeable.”
But other commenters told a different story. One person wrote that: “After working in private sector employee relations for many years and now several years in business development for a social enterprise, I have seen a few cases where a union could be appropriate and helpful when management performs poorly. In the not for profit SE — with a mission — there should never be a need to pay for third party intervention. If there is such a need, then the mission is wrong or not being achieved and the SE should be dissolved.”
Strong words, but that comment was echoed by another practitioner with decades of experience operating a social enterprise.
“The union, by default and heritage, serves as a 3rd party whose purpose is to protect workers from the abuses and self-interest of management. It must first convince the worker that this tension exists, however, because it’s going to charge the worker monthly for the privilege of having his/her interests protected. The union’s business model is entirely dependent upon making the the threat of abuse and mistreatment very real. It’s the only way to get your foot in the door and thereafter to sustain cash flow. I’m not naïve about potential abuses even within a social enterprise, but when the ultimate success of your business depends on the careful balancing of profits and people, market and mission, there are inherent checks and balances that make 3rd party engagement both unnecessary and potentially problematic.”
What do you think?
- Copyright © 2011 Rolfe Larson Associates – 15th Anniversary!
- Author Venture Forth! Endorsed by Paul Newman of Newman’s Own
- Read my weekly blogs on Social Enterprise and Business Planning
Promise (and Problems) with Microcredit
Microcredit offers great promise in helping the world’s poor. The basic idea is that a small loan, say $100, can help someone in the developing world buy some goats or a sewing machine, and use that asset to earn a living, plus pay back the loan. The idea has proven so successful in Bangladesh and other countries that one of the pioneers of microfinance, Muhammad Yunus of Bangladesh, of the Grameen Bank, earned the Nobel Peace Prize in 2006 for developing this idea.
Incidentally, microfinance refers to a wide range of beneficial financial services provided to the poor; microcredit specifically relates to providing very small loans, which are called microloans. And while we’re in the “micro” area, microenterprise refers to very small business organizations, typically 1-5 employees.
Microfinance has also been used to some extent in the developing world as well, including the United States, but with some additional twists to fit different circumstances. A good resource on this work comes from the Aspen Institute’s Field Program. One place where you can participate yourself is through Kiva.
The recent problem with finance concerns its role in India, where it is a big player in the rural areas. The problem is that the cost of developing and servicing these loans can be high. As any banker will tell you, it’s a whole lot more efficient to service big loans than small loans. And tiny ones are the most expensive. And so that’s why in India interest rates for microloans can be as high as 30%, which can put a big burden on the borrower. And, if the microfinance company finds ways to improve efficiencies and increase collection rates, it can also be very profitable.
In any event, in India there has been quite a revolt against those high interest rates, putting the entire sector on notice that it must reform its ways or face extinction from government regulators, and organized campaigns not to pay back loans with unreasonably high interest rates.
For more information, here are some recent articles on this revolt, from National Public Radio, and from the New York Times. And here’s an op-ed piece yesterday in the New York Times about this crisis, from Muhammad Yunus, entitled Sacrificing Microcredit for Macroprofits.
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For more resources, see our Library topic Business Planning.
Copyright © 2011 Rolfe Larson Associates – Fifteenth Anniversary, 1995 – 2010 —– Author of Venture Forth! Endorsed by the late Paul Newman of Newman’s Own ———- Read my weekly blogs on Social Enterprise and Business Planning
Connect with ~7500 SE fans
Just wanted to mention a listserv devoted exclusively to social enterprise. Its focus is learning more about how organizations can develop successful social enterprise strategies to generate earned income to pursue mission, build capacity and achieve greater sustainability.
If you’re interested, you’re invited to join the 7500-subscriber npEnterprise Forum listserv, the official listserv partner of the Social Enterprise Alliance.
This free, no-spam listserv offers friendly interactions among colleagues who seek to learn from each other about social enterprise strategies and best practices. Subscribers range from newcomers to experienced venture managers, and include nonprofit staff, funders, consultants, professors, students, and many others. The maximum is one email per day.
Recent discussion topics include social enterprise compensation issues, the ins and outs of LLCs and L3C legal structures, and managing partnerships with for profit organizations.
This listserv is consistently ranked as THE most valuable interactive resource about social enterprise.
We hope you will join the discussion! Subscriptions are free, and can be canceled at any time.
For more information, visit http://www.npenterprise.net
Or, to subscribe, just send a blank email to npEnterprise-subscribe@yahoogroups.com