Nonprofit Business Plan Overview
Throughout this guide, there have been numerous references to the differences between a nonprofit and a for-profit organization. Nowhere will that difference become more immediately apparent than when your organization develops its business plans. All business plans change over time to account for shifts in internal or external situations. This change is to be expected; in fact, you would be remiss if you did not adjust parts of the plan, or indeed the entire document, should circumstances require it. Think of your businesses plan as a fluid work-in-progress, and be willing to make adjustments.
The biggest difference, of course, is how you will handle any money above the amount that is necessary to operate the organization. Many of the terms used in a for-profit business plan need to be adjusted to accommodate the unique situation of a nonprofit. These subtle edits are necessary to appreciate the differences between for-profit and nonprofit business plans and the terminology used for each.Customers Become Clients
This is a subtle but essential change. You are crafting a business plan whose focus is on returning funds to the organization to further its mission rather than returning profits to investors or increasing the profit margin.Investors Become Funders
The idea of investing in a project or an organization comes with an expectation that there will be some form of benefit to the investor in exchange for the money. In a for-profit business, that benefit may take any number of forms, from appointments to high offices to a thank-you payment at the end of the year. However, any of those benefits are illegal in a nonprofit organization because no one is allowed to use the work of the organization for their own personal gain.
Any perception of personal gain can jeopardize your tax-exempt status and all the work you have put into developing the organization. Instead, people who give money to your organization must be seen as funders who contribute because they feel strongly enough abut the merits of the organization's mission to be willing to write a check. The only direct benefit those funders may see will be their ability to deduct that contribution from their tax liability, but they can expect nothing from the nonprofit they helped fund.Products Become Programs or Services
It is entirely appropriate for a for-profit business to create, produce, and sell a product — something of value that you can touch or experience. Product lines in a for-profit business can be adjusted with very few legal restrictions. The owners are legally free to modify product lines without any explanation. Naturally, there are market limitations and cash flow issues, but on a basic level, it is unlikely that the IRS will question a decision to change or drastically modify a product line.
A nonprofit is limited to providing a service that falls within the broad interpretation of its particular mission. Its tax-exempt status is entirely dependent on its ability to continue to carry out its stated mission without straying from it.A Profit and Loss Statement Becomes a Statement of Financial Activities
Profit and loss statements simply do not appear in the financial documents of a nonprofit, but you will still need to show the financial health of the organization. If you are already familiar with the way a for-profit business works, you may want to think in terms of profit and loss, but it is more accurate to begin to see the whole of the financial situation.
A statement of financial activities is a basic document that measures an organization's finances during a specified period of time. The function of a financial statement is to total all sources of revenue and subtract all expenses related to the revenue.
The value of having a financial statement prepared on a regular schedule is being able to quickly get a sense of the financial health of the organization. If the statement points to a problem each month, you will be able to address it before the problem becomes a crisis. Likewise, if the numbers are consistently good, you are definitely doing something right!