There
are a host of good reasons why a third sector organisation
needs to have a robust business plan. While individual donors
still tend to focus more on their favoured charity’s
administration, grant bodies will want to see an effective
plan and to know what it contains.
And you can now add necessity to the list – the new
SORP requirements apply to accounting periods beginning on
or after 1 April 2005 and oblige all but the smallest charities
to set out their aims and key objectives.
While individual priorities may differ from one person to
another, it’s generally agreed that setting out an organisation’s
key objectives is the crucial first step in devising a business
plan.
“You have to determine what your vision is and focus
your resources around it,” says Heather Lamont, charities
director of HSBC Investments. The process requires flexibility
and adapting to change: “Some charities don’t
realise this and stick to doing things the way that their
founder did, maybe 30 years earlier,” she says.
“But you must ask yourself if you were setting up the
organisation today from scratch, would you do things differently?
If the answer is ‘yes’, it doesn’t necessarily
mean that all the sacred cows have to be slaughtered at once.”
But a number of charities have revised their aims, or changed
direction, after posing the question. For example, Crisis
was established as a charity to tackle the problem of homelessness
and initially helped those on the street. However, as government
initiatives have reduced the number of those sleeping rough,
so its focus has shifted to address the needs of thousands
of “hidden homeless”, who have to rely on friends’
floors or hostels.
Author and consultant Alan Lawrie, of the Directory of Social
Change, cites advisory organisations as another example. Traditionally,
many have offered ‘drop-in’ help centres, but
technological progress means their users have become as likely
to rely on online services and e-mail.
“The core to deciding your business plan is to ask some
basic questions. Is your organisation achieving its objectives?”
says Charles Nall, financial director of The Children’s
Society.
For a charity, the main objective is to serve its beneficiaries
and a good business plan will determine how to maximise the
benefits, he suggests. It can develop its distinctiveness
in the process, discovering which other organisations operate
in its chosen area and determining whether there are needs
not being addressed.
In the case of The Children’s Society, the basic objective
is meeting the needs of children, says Nall. To pinpoint any
that might be overlooked, it conducted a survey that established
the symptoms of childhood deprivation, the numbers affected
by it and the associated issues. These were ranked according
to their severity, from which a scale of priorities emerged.
Nall says the survey highlighted four priority areas, these
being runaway children, those in trouble with the law, refugee
children and children with disabilities.
The latter two are particularly difficult issues when it comes
to attracting funds, he adds. Refugees are regularly pilloried
in much of the press and the public is also disinclined to
contribute towards disability services.
“The four issues identified are both striking and large
and also fit with our values,” he adds. “Local
authorities are increasingly coming under financial pressure.
This can mean that, instead of being ready to pay for a service
that’s effective, they’re merely applying a sticking
plaster and covering only their statutory responsibilities.”
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The pitfall of mission drift
So the value of a business plan to an organisation is in
providing clarity on the outcomes it seeks to achieve, says
Rohan Hewavisenti, director of finance and resources at
Breast Cancer Care. For a charity, finite resources can
be allocated to maximise the positive impact for beneficiaries.
Being clear on its aims and what it seeks to achieve also
prevents a charity from being caught up in what is dubbed
‘mission drift’, he adds. This is when, to ensure
funding, it relegates or even abandons its intended aims
as those of its donors and grant makers take precedence.
“Charities need to understand the risks and opportunities
for their beneficiaries. They can then campaign or provide
services in the relevant areas,” says Hewavisenti.
What people require from charities changes over time, reflecting
developments both in the public provision of services and
also in society’s expectations, he adds. Mindful of
this, Breast Cancer Care reviewed its own aims a few years
ago. The outcome was a decision to extend the reach of its
services. “This meant putting together both a more
ambitious plan and a more ambitious fundraising plan.”
The charity was able to think through the various risks
arising from its greater ambitions by taking a longer-term
view, he says. “It may be difficult to look beyond
the current year when it comes to detail, but you need to
have a three to five-year plan when it comes to planning
the organisation’s direction.”
The longer-term view enables a charity to understand both
the risks and opportunities for its beneficiaries, and then
campaign or provide services in the relevant areas, suggests
Hewavisenti.
A business plan provides the framework for staff and volunteers
to be creative and innovative, while planning and strategy
can constantly evolve in line with changes in society. Realistic
targets and how progress is to be monitored should be considered
at the planning stage.
Forming the plan
So where do you start? The trustees should determine the
charity’s mission statement, says David Membrey, deputy
chief executive of the Charity Finance Directors Group.
This filters down into the strategic plan, to form the outline,
or bare bones, of the business plan.
Problems can arise when the strategic plan fails to mesh
with the operational plan of staff at the operational and
service level, who may simply carry the details in their
head and not have it written down.
“A strong business plan brings together all of the
elements, from the mission statement to the strategic plan
and the day-to-day running, and ensures that staff aren’t
doing anything that is inconsistent,” he explains.
With resources likely to be tight, the business plan will
enable them to be effectively allocated, but this can only
be done if staff at all levels are involved and their input
used.
“Theoretically, it should be easier for a small charity
to involve staff – because there are fewer of them,
you can bring them together and hammer things out,”
Membrey says. “But there can still be a potential
gap between the vision and plans of the trustees and those
of the staff.”
The DSC’s Lawrie, who shares this view, observes that
the plan is no more than a paper document if involvement
doesn’t extend beyond the trustees and officers. Another
potential weakness is that the plan ends up being either
a continuation of, or justification for, what has been done
before, when a radical rethink may be needed.
Weathering the storms
The next stage, suggests Membrey, is to break the charity
down into logical business areas, grouping it around the
charity’s key deliverables and its beneficiaries.
The process should be based on strategic thinking and may
result in the staff structure needing revision.
To be manageable, the plan should establish the charity’s
key areas, which should number somewhere between five and
a maximum of eight.
In determining how much the charity intends to spend and
how much it will retain and invest, ‘zero-based budgeting’,
although it has become a buzz phrase, is nonetheless useful,
says HSBC Investments’ Lamont. It is based on the
premise that every cost and activity should be considered
and justified for the forthcoming period and not automatically
carried over merely because it has featured before.
Charities are too often reluctant to give sufficient priority
to a financial strategy, adds The Children’s Society’s
Nall, but the Micawber principle of happiness – where
income remains ahead of expenditure – still holds
true. Too many have run into trouble because funding was
neglected, resources failed to keep pace with demands or
there was no reserve to guard against the unexpected.
“The Children’s Society is a relatively large
charity, with a solid core of support – but about
every 20 years a crisis hits,” says Nall. “It
may be caused by government legislation, it may be economic
– for example, the high inflation rate of the 70s
and 80s which made job cuts necessary – or it may
be sociological, such as the introduction of the Pill. In
recent years the slump in investment values and pension
fund deficits has created a major headache.”
But it’s possible to weather the storms if the charity
runs a structural surplus on its general fund, to subsidise
individual ventures that may be loss making, he believes.
“What is the business going to look like over the
next three years? We run a basic model of various paths
into the future for our financial modelling, which includes
various scenarios encountered over the past 25 years. We
ask ourselves how we would cope with an economic meltdown
and what restraints this would impose on us.”
And the effort that goes into an effective business plan
ensures that it can continue to serve the needs of its beneficiaries
and have the necessary funding, he adds. “It would
be awful if a child who has been dumped on were to find
the Society has removed a service that he or she needs.”
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