business planning for social enterprises presented by, david derryck davidderryck@gmail

ZeroDivide 2012 Fall Convening

Business Planning for Social Enterprises

Presented by, David Derryck

[email protected]

(C) 212-749-9726

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Agenda

Today’s goalsHow did I get here?Why do I need a business plan?Business Planning 101Detailed Components of Business PlansRapid Business Planning TemplatesRecapResources

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Today’s Goals

To look at the core components of business planning

To learn strategic and tactical frameworks for developing business plans that lead to success


We Started A Social Enterprise Because…

Mission drivenContribute to the overall agency budget

Key question: Are you operating a program or an enterprise? What is the fundamental difference between the

two?

Opportunity, opportunity, opportunity


We Do Not Have A Business Plan Because… Opportunity, opportunity, opportunity I’m leveraging an existing program The business is straightforward We are already up and running Planning will only slow us down We are too small to need a business plan I don’t have the time to stop and write one


Why Do I Need A Business Plan?

Strategic Reasons Explain the business to

others in order to inform, motivate & involve.

Serve as a framework for decisions or for securing support/approval.

Provide a basis for more detailed planning.

Assist benchmarking & performance monitoring.

Stimulate change and become building block for next plan

Tactical Reasons Identify goals Inventory resources Analyze business

performance Assess the market

environment and the potential

Decide on actions Implement strategies Evaluate the plan


Business Planning 101

A business plan is all about Finding your competitive advantage Describing your competitive advantage Refining your competitive advantage

in order to achieve your enterprise goals and objectives.


The Usual Components of a Business Plan Business Description Products and/or Services Offered Operations Industry Background and Analysis Location Competition Management Staffing Finance


Detailed Components of the Business PlanBusiness Description • A comprehensive description of the business

• What is the opportunity? • What problem are you solving for paying customers?• What is the size of the market• Your business model, i.e., source(s) of revenue

Products and/or Services Offered

• What are you selling and at what price?• What are the features and benefits of what you are

selling?• What makes it different and desirable?• How will products be manufactured or services provided?

Operations • An evaluation of the operation itself• An inventory of facilities and equipment• An overview of the staffing • An overview of production methods


Detailed Components of the Business PlanIndustry Background and Analysis

• Describe the size of your industry and its unique characteristics

• Define your target markets• What is the size of your target market? • What is its growth potential?

• Is the market competitive? If not, why not?• Who are your customers?

• Why will they buy from you?• How will you reach them?

Location • Where will your business be located? Why this site?• How much space do you need

• At what cost? • Who pays for utilities? • Who pays the real-estate taxes?• What about renovations or a build-out if required?

Competition • Give an overview of the competitive landscape• What is your competitive advantage?

• Is it defensible? Is it easily copied?

• List your five closest competitors and describe how you will be better than them


Detailed Components of the Business PlanManagement • Provide bios, qualifications, and experience of you and

your team

Staffing • Who will you be hiring and at what pay rate?• What are the roles and responsibilities• What does the org chart look like?• When will you fill each position?

Finance • Historical performance if it exists• Profitability expectations• Cash flow requirements• Pro-forma financial projections into the future• How much money are you trying to raise?• What will it be used for?


Double Bottom Line Financials for Social EnterprisesDouble Bottom Line Template and DefinitionsLast updated: 9/05/2012

Line Items Bus Soc Total Definition

SALES

Sales - Product 1 75 0 75 Income generated from sales of a good or service



+ Total Revenue 125 0 175

COST OF GOODS SOLD (COGS)

Materials 25 0 25 Supplies and other variable costs per unit sold

Direct Labor 35 0 35 Fully-loaded cost of line staff (also a variable cost) and non-salaried supervisors, includes fringe.

- Cost of Goods Sold (COGS) 60 0 60

The direct costs attributed to the production of the goods or services sold by a social enterprise. This amount includes material and direct labor costs; it excludes indirect expenses such as distribution costs.

Total COGS = Materials + Direct Labor

= Gross Income 65 0 115 Gross Income = Total Revenue - COGS

Gross Margin (%) 52% 66% Gross Margin = Gross Income / Total Revenue

EXPENSES

Personnel 10 5 15 Fully-loaded expenses of supervisors and management (i.e., Enterprise Director)

Business Training 0 15 15 The overall category is "support" but split into business training versus ESP (reflected in the two columns)

Employee Supports 0 15 15 The overall category is "support" but split into business training versus ESP (reflected in the two columns)

Sales and Marketing 3 2 5 Costs associated with sales, marketing, advertising and securing new business

Occupancy and Other 12 3 15 Fixed costs incurred by operating social enterprise (e.g., rent, phone, vehicles, insurance, etc.)

- Operating Expenses 25 40 65Total of indirect labor costs such as management, salaried supervisors, occupancy and distribution costsOperating Expenses = Personnel + Training/Employee Supports + Sales and Marketing + Occupancy and Other

Total Expenses 85 40 125 Total Expenses = COGS + Operating Expenses

= Net Income 40 -40 50 Net Income = (Total Revenue - Total Expenses) OR (Gross Income - Operating Expenses)

Net Income Margin 32% 29% Net Income Margin = Net Income / Total Revenue

+ Grants 0 25 25 Covers all types of subsidies independent from the source (government, non-profit, private, etc.)

- Agency Overhead (AO) 20 10 30 For most groups we are using their indirect cost rate %

= Net Income after AO 20 -25 45 Net Income after AO = Net Income - AO

Net Income after AO Margin 16% 26% Net Income afer AO Margin = Net Income after AO / Total Revenue


Frequent Business Planning Pitfalls

Product & Services Sales & marketing Management Operations Finance

Inability to supply product or service profitably at a competitive price.

Misjudging the size or growth of the overall market.

Lack of relevant market sector experience.

Under-investment in equipment etc.

Underestimating start-up costs (for operations & capital expenditure).

Problems with maintaining quality standards.

Overoptimistic estimates of market penetration and share.

Insufficient functional breadth.

Excessive overheads (relative to scale of operations).

Insufficient funds or access to working capital.

Limited range of offerings.

Delays in securing or developing distribution channels.

No formal or clear structures.

High operational costs and/or low productivity.

Mistaking gross profit for cash flow

Lack of innovation (“me-too” offerings).

Underestimating the strength of competitors.

Ineffective financial and managerial control systems.

Poor capacity utilization. Overoptimistic projections.

Problems sourcing supplies.

Misreading customer requirements.

Inadequate distribution.

Offerings out of line with customer needs.

Lack of promotion and customer awareness.

Inappropriate business location.


Brainstorming Canvas - focuses on finding and resolving early startup risks.


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Recap

Where are you in your business planning?Use the DBL to accurately see the

performance of your enterprise with and without grant funding

Use the Brainstorm canvas to capture your “10,000 ft” view

Use the Business model canvas to get you to the “1,000 ft” view

Write the detailed plan and execute against it


Resources Recommended PDF based on comprehensive business planning for a social enterprise. It

is a UK focused organization, but the guide is extremely thorough and provides a template in the Appendix

http://socialenterprisefund.ca/wp-content/uploads/2010/01/New_BusPlanGuide.pdf

Recommended website based on ease of use and ability to download materials http://www.redf.org/learn-from-redf/tools

To learn more about business canvases Google: Lean Canvas

To learn more about legal structures see the PDF: Using New Hybrid Legal Forms: Three Case Studies, Four Important Questions, and a

Bunch of Analysis


Thanks!

business planning for social enterprises presented by, david derryck davidderryck@gmail

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