Failing to write a comprehensive business plan is perhaps the most common mistake made by those in the beginning stages of forming a nonprofit. While you are not in the business to make a personal profit; you are in the business of making a profit. Most potential board members, donors, and community partners want to see just how you intend to do that.
Your business planning process will also be the very best guide for you to satisfy the questions you must answer when applying to the IRS for tax exempt status. Adequately filling out IRS Form 1023, Application for Recognition of Exemption, requires you to think through and prepare a few of the following items: Organization Name, Organization Website, Organizational Structure, Articles of Incorporation, Bylaws, Charitable Purpose, Narrative Description of Organization Activities, List of Officers/Directors/Trustees and Five Highest Paid Employee’s with Proposed Compensation, Titles and Mailing Addresses, Financial Compensation and Conflict of Interest Policy, Narrative and Strategy of Fundraising Activities, and Three Year Financial Projection.
If your IRS application for exemption is approved, you are now open for public inspection. Your business planning materials and your business plan provides you with the audit trail required.
A typical nonprofit business planning process will address all of the critical questions asked by interested parties. The table of contents should include these seven sections:
Executive Summary: This is a synopsis of your business plan and financial snap shot.
Organizational Structure: Describe how your nonprofit is organized, including the staff and board of directors.
Products, Programs or Services: What programs or products are you offering? Include processes, the benefits of your services, future growth plans, and list anything new, on trend, or answering to a community need.
Marketing Plan: In this section describe who you are trying to reach and how you intend to reach them. List the constituencies you serve. Explain your competition and your potential partners. How will you promote your services and through what materials?
Operational Plan: Where will you be located and how will you deliver services? Explain in detail how you will evaluate your program and its services.
Management and Organizational Team: Who is on your management team? Provide information about key management staff and their expertise. List the members of your board. Detail their expertise. List financial sponsors. Include an organizational chart. Explain lines of responsibility. Provide an assessment of current and future staffing needs, including how you will use volunteers.
Financial Plan: Determine your current and/or projected financial status, thoroughly explaining sources of income. You will include an income statement, balance sheet, cash flow statement, and a minimum three-year financial projection.
If done well, your business plan will not only guide you to answer the IRS Form 1023 questions, it will also act as a document to present to potential major donors and grant-makers. It will help you to recruit board members and community collaborators. If you will need a bridge loan or line of credit, this document will prepare you to meet with a financial institution.
Starting and sustaining a nonprofit is in many ways much more difficult than starting a new business. Dedicate yourself to the business planning stage first, and you’ll find your journey will be a bit lighter.