IREX Liberia SE Training 2013 Social Enterprise Business Planning Social Enterprise Business Planning DEN-L July-August 2013

Soc ial Imp act Jan uar y Presentation Outline Business plans for Social Entrepreneurs  Why?  What for?  What? Difference from regular plans SE Business plan components Q & A

Soc ial Imp act Jan uar y Management tool  Links strategies to tactics  Grounded in reality  Responds to market forces  Many uses Most nonprofits lack knowledge of how to prepare b-plans Demanded by more donors “Failing to plan is planning to fail” Why Business Planning?

Soc ial Imp act Jan uar y What is a Business Plan? A detailed presentation about your organization’s (scaling) plans that demonstrates how it will succeed in financial terms AND the social impact that it will create.

Soc ial Imp act Jan uar y A Road Map Business plans chart the course to realize the organization’s vision. To Vision 2 new senior Staff hired 25 Links between business & citizen’s sector Social Entrepreneur Acquisition up 20%

Soc ial Imp act Jan uar y Why do you Need a Business Plan? For the investor/donor:  Evidence of the nonprofit’s ability to conceive and execute scale  Articulates financial needs and uses of funds Use – sales document Communications tool For the social entrepreneur:  A planning framework  A management tool for resource allocation and decision-making Use – Management and implementation plan

Soc ial Imp act Jan uar y Purposes  Planning Framework  Articulates vision and mission  Sets goals and objectives  Defines strategies and specific actions to achieve objectives  Measures results  Communicates ideas, plans & social value  Projects necessary resources, expenses, & revenues  Provides a basis for SOUND decision- making

Soc ial Imp act Jan uar y Business Plans vs. Proposals Business plans are:  Flexible documents that change in accordance to market forces  Results-oriented  Market-driven  Project blueprint  Open - treats project as going concern Proposals are:  Fixed for the life of the project or funding period  Process-oriented  Donor-driven  Not usually used as management plan for project  Closed – treat projects as time- limited

Soc ial Imp act Jan uar y Anatomy of a Business Plan Vision Mission Marketing Plan Operations Plan Human Resource Plan Financial Plan Concept & Objectives Market Research

Soc ial Imp act Jan uar y Interrelationship Mission Objectives Market Research: Target Market Competitors/external factors Business Assessment Marketing Plan Operations Plan Financial Plan Human Resource Plan Vision Financial Plan Financial Plan Contingency Plan

Soc ial Imp act Jan uar y Strategies and Tactics Strategic Goals Objectives vision StrategiesStrategies tactics

Social Impact January 2007 Social Entrepreneur's Market Social Market “Beneficiaries” of impact  Client  Community  Environment  Public  Government Competitors  Role of subsidies in the market Collaborators  Strategic alliances and partners “ Business ” Market Demand Competitors Industry Dynamics Trends Barriers Opportunities Market Segments & Size

Soc ial Imp act Jan uar y Who’s your “customer” Donors are stakeholders to whom social entrepreneur is accountable for results Clients are “beneficiaries” of social services or social impact. Customers are those buying social enterprise products and services.

Soc ial Imp act Jan uar y What’s your context? Opportunities Threats Strengths Competition Weaknesses Collaboration

Soc ial Imp act Jan uar y How attractive is your industry? Power of Suppliers Power of Buyers Substitutes Barriers to Entry Rivals

Soc ial Imp act Jan uar y The Five Plans for All B-Plans Marketing  Getting products and services to your target market Operations  Day-to-day functions of running your organization Human Resources  The people you need to execute your scaling plan Finance  Capital required to finance scaling activities Contingency Plans  What could go wrong and what will you do about it if it does?

Soc ial Imp act Jan uar y Marketing Plan Target Market  Beneficiary/client needs/wants Marketing mix: 4 Ps  Product  Promotion  Price  Place On going market research

Soc ial Imp act Jan uar y SE Marketing Considerations What are you selling? To whom are you “selling” your value proposition? Outreach component for the target population and community? Obligations to stakeholders—i.e. donors and government? Partners or networks? Pricing considerations for target group? PR component to protect organization’s reputation?

Soc ial Imp act Jan uar y Operations Managing service delivery while scaling Quality Assurance Including managing and measuring time Monitoring and measuring hard and soft deliverables Designing systems with capacity to grow  transparency Social Impact and Monitoring Systems  Systems that collect and measure social impact Customer and client satisfaction

Soc ial Imp act Jan uar y Human Resource Plan Management team Roles & responsibilities of various actors Staffing and recruitment plan  Incentives and reward systems Governance Capacity building plan Staff, institution, target group Considerations for SE staffing duality (for enterprises) Program and business

Soc ial Imp act Jan uar y Capacity Investment Choices Productivity Return on Investment? $ Jobhard skillssoft skillscredit/savingseducation $$$$

Soc ial Imp act Jan uar y Capacity Building Plan Capacity Building MethodBenefit to Enterprise/organization Mission On-the-job training Provide a jobSkilled labor Processing skills Training/TAImproves productivity, product quality Inventory tracking Training/TAImproves inventory management Soft skillsTraining/ practice Stabilizes work force Leadership development Training/ practice Higher self-esteem, morale, productivity, self- management Savings program Savings service Reduces risk aversion through financial security Health services Health program linkage Improved health = higher productivityNo

Soc ial Imp act Jan uar y Financial Plan Social Enterprise B-Plan  Financial objectives  Budget  Resource Acquisition Plan Includes grants and gifts  Cash flow  Income Statement  Balance sheet

24 Role of Subsidy SE RevenueSE ExpenseBusiness ExpenseBusiness revenue $$$ Years Social Enterprise Breakeven Point Private Business Breakeven Point Social subsidy Investment

Soc ial Imp act Jan uar y Financing & resource acquisition Year 1Prospect Year 2Prospect Earned income (sales) Interest income Parent organization Grants Gifts/contributions Soft Loans Commercial loans

Soc ial Imp act Jan uar y Risk Analysis & Contingency Planning Build capacity to make accurate projections Add in buffer for expenses Use “what if…” scenarios Sensitivity analysis for major decisions  Major expense categories Test business plan assumptions Objectivity

IREX Liberia SE Training 2013 Planning the Plan: Recommendations

SK OLL CE NT RE FO R SO CIA L EN TR EP RE NE UR SHI P 28 Is the idea a concept? Social Enterprise

IREX Liberia SE Training 2013 SK OLL CE NT RE FO R SO CIA L EN TR EP RE NE UR SHI P 29 Theory of Change Get Grounded Social Enterprise Design

IREX Liberia SE Training 2013 SK OLL CE NT RE FO R SO CIA L EN TR EP RE NE UR SHI P 30 Understand: Nature of social problem Needs/limitations of clients Assess the Market

SK OLL CE NT RE FO R SO CIA L EN TR EP RE NE UR SHI P 31 Where to begin Clarify your business and its goals Build scenarios  Play it out your idea Identify deal breakers  What will make or break your business Money, laws, partners, etc. Identify key design influencers  Competitors, industry dynamics, regulatory environment, demand, required resources Reality Test  Objective feedback  Quick Market Test  Benchmarks

SK OLL CE NT RE FO R SO CIA L EN TR EP RE NE UR SHI P 32 Pare it down Scope  For most SEs scope is a practical issue of $  Location; (other resources) have’s have nots;  Time Strategy  Low hanging fruit  Window of opportunity  Proof of concept/display  Inflection point for impact Assumptions  Informs market research

IREX Liberia SE Training 2013 Planning the Plan: Recommendations

Soc ial Imp act Jan uar y B-Plan Essentials Consensus and ownership Appropriate participants Adequate preparation time Financial considerations Relevant flexibility Solid market research Participatory methods (within limits) Realistic (achievable) targets

Soc ial Imp act Jan uar y Planning  Time spent convincing nonprofits benefits of B- Plans, is time well spent!  Include appropriate stakeholders.  Link human resource incentives to achievement of B-Plan goals.  Make it official: celebrate the completion of the Business Plan or important sections.

Soc ial Imp act Jan uar y Appropriate Participation Identify for which Business Plan elements consensus must be reached For each section clarify individual and small group roles for output. Set strict deadlines Devise incentives to meet deadlines

Soc ial Imp act Jan uar y Set Realistic Planning Targets Business planning takes weeks or months and requires resources.  Develop the Business Plan work plan, including: deadlines, key people, financial resource  Plan on time and money for research  Conservatism is the rule of thumb - do not be overly optimistic with targets  Be flexible to changes

Soc ial Imp act Jan uar y Dynamic Process within Limits Business plan changes must be based on sound business decisions. Agree on Bplan elements that are nonnegotiable. Educate on the conditions that warrant Bplan changes (market, environmental/industry changes). Schedule business plan reviews to discuss.

Soc ial Imp act Jan uar y Business Plan Components Executive Summary Vision & mission statement Organizational and Environmental Assessment Market Competitive Analysis Marketing Plan Human Resources Plan Operations Plan Financial Plan Risk Assessment and Contingency Plan Supporting Documents

Soc ial Imp act Jan uar y Social Targets Require Brutal Reality Select impact measurements early and do a baseline study Build information system to collect and measure impact. Collect anecdotes evidencing social impact. Budget for social impact monitoring. Timing and manner of social impact dependant on vision and mission.

Soc ial Imp act Jan uar y Social Return and Impact “ Social Bottom Line ” for social enterprises.  Social Return on Investment (SROI) measures the social value the social enterprise creates in financial terms as a ratio of the investment.  Social impact measures qualitative and quantitative social impact based on social objective and type of organization Most nonprofits are accustomed to using this type of measurement.

Soc ial Imp act Jan uar y E.g. social impact measures Impact from livelihoods OrgImpact social service org Asset accumulationImproved education ScaleImproved housing Client incomeQuality of diet Job CreationAccess to health care Skills acquisitionIncreased autonomy

Soc ial Imp act Jan uar y Monetizing SE Value Enterprise Value = economic value of the enterprise. Cash flow analysis of business performance. Social Value = direct demonstrable cost saving and revenue contributions Blended Value = enterprise value + social value – debt

44 Financial Projections SE RevenueSE ExpenseBusiness ExpenseBusiness revenue $$$ Years Social Enterprise Breakeven Point Private Business Breakeven Point

Soc ial Imp act Jan uar y Double Bottom Line Income Statement Total Operating Expenses Total Gross Revenue NET PROFIT/LOSS BEFORE SOCIAL COSTS = Financial Bottom Line Less Social Costs = Social Bottom Line NET PROFIT/LOSS AFTER SOCIAL COSTS = Double Bottom Lines

Soc ial Imp act Jan uar y Subsidy in Income Statement Income Statement Gross ProfitIncome earned through enterprise Operating Expenses (before taxes)Costs related to operating enterprise NET PROFIT/LOSS (before taxes)Income less expenses SubsidyLess Grants, donations, gifts NET PROFIT/LOSS AFTER SUBSIDYTotal lost or gained after subsidy