Business Planning for Social Enterprise

Mick Dobson

Business Planning for Social Enterprise

Seven Stages

Business Development for Social Enterprise – The Journey

1. Motivation

2. Preparation – Risk assessment, Self assessment

3. Assessment

4. Test your idea

5. Exploration

6. Business planning

7. Start-up

Motivation

• Why are you doing this?• Do you know enough?• What options are there for you?• Are your stakeholders on board?• Is the proposal/idea sound?

Motivation

• Do you want to run a business?• Do you seek out new challenges?• Are you realistic about your

capabilities?• Are you prepared for the long

haul?• Do you fully understand the risks?• Do you find change exciting?• Do you have a clear social aim?• Do you have the full support of

your board and colleagues?• Can you motivate people and

take the lead?

• Have you got the drive and self-belief to take this forward?

• Can you make decisions?

• Are you flexible enough to learn from mistakes?

• Do you listen to advice?

• Are you determined enough and prepared to keep going when things get tough?

• How do your values influence what you want out of developing and running a social enterprise?

You Might Now Know...

• The social aim of your business• Why there’s a need for it• How you will meet that need• Your legal form• Your key stakeholders

Preparation

• Culture Assessment• Capacity Assessment• Risk Assessment

Culture Assessment

• Your style of leadership/management• Your values and principles• Who are the decision makers?• What changes might be necessary?• What relevant experience do you have?

Capacity Assessment

• Current purpose and activities• How successful are you?• What skills/experience/resources?• What changes will be necessary?• Are Board/key staff supportive?

Risk

• How are you funded now?• Are your financial systems adequate?• How’s your cash flow?• Your relationship with your bank?• SWOT of your funding

Assessment

• Ideas generation• SWOT• PEST• Commercial appraisal

External Analysis

Political Economic Social Technological

These can be political factors or policy decisions that affect the operating environment

These are issues that affect the purchasing power of customers and other businesses

These are factors that affect customers needs and potential markets

These are innovative developments or trends that might affect markets

Examples: Examples: Examples: Examples:

Tax

Employment

Environmental regulations

Trade restrictions/tariffs

Political stability

Europe

Economic growth

Interest rates

Inflation

Unemployment

Supply/Demand

Demographic and cultural changes

Population growth rate

Social Attitudes

Employment Environment

Research & development

Automation

Technology

Innovation

Now You Can Add:

• The external factors and trends affecting your business• How you plan to move towards sustainability• What IS your business idea?

Testing Your Idea

• Who, where are your customers?• Can you reach them?• What is your break even point?• Social need vs Market demand• Costs/overheads/equipment/premises• Competitors/pricing

Exploration

• Feasibility study• Market research• Customer profile• Competition• Price• Location• Marketing strategy – P’s• Resources and barriers

Draw Conclusions About:

• Price• Place• Product• Promotion • People• Process• Purpose

• Price - This should reflect the value placed on the product or service by the customer

• Product - This can refer to a service as well as a physical product as it encompasses tangible and intangible characteristics. It can also be used to include people and any values associated the brand.

• Place - The product or service should be available when and where the customer wants it.

• Promotion - The promotional mix can include advertising, direct mail, PR, cold calling, trade fairs networking events, word of mouth etc.

• People – Does your team have the necessary skills?

• Process – Will you have quality standards to promote, such as investors in people, Equal Opportunities or Environmental Standards? How will this inform your marketing strategy?

• Purpose – Will your social purpose present you with a unique place in the market? If you want to market your enterprise on its social purpose can you prove the impact you make? In some circumstances, where particular target customers empathise with your social purpose, this may get you a foot in the door.

Business PlanningYour Business plan will:

•Provide you with a route map. It is not a destination; it should and will change.

•Give you credibility and confidence in articulating your proposal when you approach other organisations.

You should consider the following questions before you start to draft the business plan:

•Who are you writing the business plan for?

•Would you fund or support your social enterprise based on the information you have provided?

Stages of a Business Plan

• Exec Summary• The Business• Organisation• Key Staff• External Relations• Product or Service• The Market

• Social Purpose• Social Impact• Business Environment• Industry analysis• C S F • Development Strategy• Turnover/sustainability

Stages of a Business Plan

• Marketing and Sales• Premises• Suppliers• Production• Equipment• Action Plan• Finance – Ops budget, cash flow• Appendices

Executive Summary

This is your best opportunity to make a good first impression . A snapshot of what the social enterprise does. A snapshot of what the organisation does, if appropriate, where you are now, where you want to go and how you will get there.

The Business Basic details – Name, Address etc.Business Idea. Social purpose. Legal Status. Structure

Organisation Background of the organisation. The mission statement/ aims of the organisation. The legal structure, Management structure and basic details as above.

Key Staff A brief summary of the skills, experience and knowledge of all the people involved in the organisation. Roles and responsibilities. Training requirements.

External relations Relationships with professional and legal representatives, funding organisations. Relationships with monitoring organisations, trade associations, networks, etc.

Product or Service Description of products, services or activities.

The market Who will buy your goods/services? Why will customers buy from you? What is your USP? Market research – including trends such as changing in age group, people moving in, features such as the seasonal effects of tourism. Competition. Market Testing. Similar social enterprises.

Social Purpose Who will benefit? Why is there a need for a social enterprise? How will running a social enterprise meet the need?What type of social enterprise is it? What are your external stakeholders’ views?

Social Impact How will you measure your social impact?What tools can support you to do this? What evidence of impact do funders and financers require? How much will impact measurement cost?

Business Environment

What support is there to help you to measure your social impact? Key issues in the external business environment that may affect your business

Industry Analysis Key issues affecting the industry in which you intend to operate

Critical Success Factors

The main critical success factors for your business

Business Development

Your strategy to ensure you meet your critical success factors

Turnover and Sustainability

Expected turnover Expected non-commercial incomeExpected profitHow long it will take to achieve sustainability How will you achieve your expected turnover, non-commercial income and sustainability? Scenario planning

Marketing and Sales

What is your marketing strategy? What is your pricing strategy?What is your promotional mix? What it your customer care policy? How do you get customer feedback? Who will be involved in marketing? What is your marketing budget? What is your distribution strategy/process?What is your e-commerce strategy?

Premises Location and property details Cost and proposed method of financing (buy/rent/lease) Planning, health and safety issues, building, renovation or adaption costs Insurance

Suppliers Who are your main suppliers? Who is in the supply chain?Are there any alternatives?The advantages of using these suppliers

Production Quality standards Production methods and supervision Health and Safety

Equipment Description and proposed costs of equipment/ vehicles to be purchasedFinance arrangements Depreciation policy

Action Plan Key milestones / timelines and associated activities Costs and personnel requirements

Finance Budget assumptions (Projected income & Expenditure) Realistic cash flow forecastBalance sheet/profit and lossFinance required and methods of raising finance Funding secured, previous funding or large scale fundingAssets you have as security Alternative methods of finance Financial management systems and resourcesPrevious experience of loan finance

Appendices CVs of all those involvedProfessional adviser’s reports if usedQuotations for equipment Details of premises References/letters of support (details of trade association, network memberships)Any other supporting material (Including details of bank, lawyer, accountant, monitoring agencies) Copies of previous years’ accounts if you have them

Sales Forecast

Sales forecast Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

Unit price 5 5 5 5 5 5 5 5 5 5 5 5  

Volume 200 300 500 1,000 1,000 1,000 1,000 1,000 1,000 1,500 1,500 1,500 11,500

Revenue 1,000 1,500 2,500 5,000 5,000 5,000 5,000 5,000 5,000 7,500 7,500 7,500 57,500

Sales price (per duck) £5.00Purchase price (per duck £3.00

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

Sales revenue 1,000 1,500 2,500 5,000 5,000 5,000 5,000 5,000 5,000 7,500 7,500 7,500 57,500

Cost of sales 600 900 1,500 3,000 3,000 3,000 3,000 3,000 3,000 4,500 4,500 4,500 34,500

Gross profit 400 600 1,000 2,000 2,000 2,000 2,000 2,000 2,000 3,000 3,000 3,000 23,000

Travel expenses 150 150 150 150 150 150 150 150 150 150 150 150 1,800

Insurance 30 30 30 30 30 30 30 30 30 30 30 30 360

Telephone 20 20 20 20 20 20 20 20 20 20 20 20 240

Website 0 0 500 15 15 15 15 15 15 15 15 15 635

Bank charges/ interest 20 20 20 20 20 20 20 20 20 20 20 20 240

Depreciation* 105 105 105 105 105 105 105 105 105 105 105 105 1,260

Professional fees 20 20 20 20 20 20 20 20 20 20 20 20 240

Drawings

Total expenses 345 345 845 360 360 360 360 360 360 360 360 360 4775

Net profit 55 255 155 1,640 1,640 1,640 1,640 1,640 1,640 2,640 2,640 2,640 18,225

Profit and Loss Projection

Cash Flow Forecast

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total

Cash Sales 200 300 500 1,000 1,000 1,000 1,000 1,000 1,000 1,500 1,500 1,500 11,500

Credit sales 0 800 1,200 2,000 4,000 4,000 4,000 4,000 4,000 4,000 6,000 6,000 40,000

Capital injection 5,000 5,000

Total cash in 5,200 1,100 1,700 3,000 5,000 5,000 5,000 5,000 5,000 5,500 7,500 7,500 56,500

Suppliers 600 900 1,500 3,000 3,000 3,000 3,000 3,000 3,000 4,500 4,500 4,500 34,500

Capital equipment 5,000 0 0 0 0 0 0 0 0 0 0 0 5,000

Travel Expenses 600 100 100 100 100 200 100 100 100 100 100 100 1,800

Insurance 360 0 0 0 0 0 0 0 0 0 0 0 360

Telephone 0 0 60 0 0 60 0 0 60 0 0 60 240

Website 0 0 500 0 0 45 0 0 45 0 0 45 635

Bank charges/ interest 20 20 20 20 20 20 20 20 20 20 20 20 240

Professional fees 0 0 0 0 0 0 0 0 0 0 0 0 0

Total cash out 6,580 1,020 2,180 3,120 3,120 3,325 3,120 3,120 3,225 4,620 4,620 4,725 42,775

Net cash flow -1380 80 -480 -120 1,880 1,675 1,880 1,880 1,775 880 2,880 2,775 13,725

Opening balance 0 -1,380 -1,300 -1,780 -1,900 -20 1,655 3,535 5,415 7,190 8,070 10,950

Closing balance -1,380 -1,300 -1,780 -1,900 -20 1,655 3,535 5,415 7,190 8,070 10,950 13,725

Costs and Pricing

• What’s the most I can charge?• Is it enough?

Price elasticity of demand

Never cut your prices.

Well, almost never.

Here’s why:

Let’s drop our price, that’ll get sales going.....

Cost priceSelling price GP

Price cut of:....

Revised SP

Revised GP

Sales vol

Original profit £

Revised profit £

extra units to stand still

% vol increas

e to stand still

75 100 25% 10% 90 17% 500 12500 7500333.333

3 67%

75 100 25% 5% 95 21% 500 12500 10000 125.00 25%

75 100 25% 2.50% 97.5 23% 500 12500 11250 55.56 11%

85 100 15% 2.50% 97.5 13% 500 7500 6250 100.00 20%

Let’s drop our price, that’ll get sales going.....

Cost price

Selling Price GP

Price cut of...

Revised SP

Revised GP

Original Profit

Revised Profit

Extra units to stand still

5 vol increase to

stand still

75 100 25% 10% 90 17% 12500% 7500% 333% 67%

75 100 25% 5% 95 21% 12500% 10000% 125% 25.00%

75 100 25% 2.50% 97.5 23% 12500 11250 55.56 11.00%

85 100 15% 2.50% 97.5 13% 7500 6250 100 0.2

Useful Links

Excellent website to guide you further:

•http://www.wrexham.gov.uk/english/business/social_economy/se_toolkit.htm#download

Very Comprehensive site - full of background information and principles:

•http://www.forthsector.org.uk/docs/New_BusPlanGuide.pdf

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