Q: My partners and I are having hard time trying to figure out if we should reclassify our business as a nonprofit entity. Would the answer change the type of business plan we need?
A: Absolutely! A business plan is a document that has a specific audience. If the audience changes, the plan will need to change. Of course, a for-profit investor audience and a nonprofit audience do share some concerns.
Both types of investors want to see a well-managed operation. For-profit investors look for low costs, which means more profit for them. Nonprofit investors, on the other hand, are actually investing in a cause, so they want to see as much money as possible go toward that cause-not toward overhead. Keep in mind that any plan you put together should build the case that you can operate well and actually do what you're claiming. But the similarities end there.
For-profit investors want to see a profitable business that offers a safe, high return on their money-in relatively short order. You'll need to demonstrate there's a market for your product or service that's willing to pay for it out of their own pockets. If you're starting a motel, for example, investors want assurance that in your location, there's enough demand at the price you charge to make a good business. Furthermore, since for-profit investors want their money back, the business must either generate a lot of cash or be a good acquisition or IPO candidate. The emphasis is so much on profit that a for-profit company may end up changing its line of business in the course of its lifetime.
Nonprofits are usually funded by foundations or people who want to see the organization provide a community service. They are concerned about what you'll accomplish and how you'll get the results they want in the world. In a nonprofit plan, what you do is paramount-you rarely find nonprofits that change their mission once they're underway.
The fund-raising process for a nonprofit differs from for-profit fund-raising as well. Foundations and donors often have their own requirements for what goes into a grant proposal, and you may find that with nonprofit status, you spend a lot of time figuring out how to satisfy each organization's idiosyncratic requirements. I'm not an expert at grant writing, but plenty of books on the process have been written.
In short, your objectives in either plan are the same: to meet your funding source's needs by laying out a plan for an organization that will get the job done better than other organizations. In for-profit, it's the bottom line that counts, and your plan will be geared around that. In nonprofits, it's what you do that matters, so you should craft a plan to meet that need.
As an entrepreneur, technologist, advisor and coach, Stever Robbins seeks out and identifies high-potential start-ups to help them develop the skills, attitudes and capabilities they need to succeed. He has been involved with start-up companies since 1978 and is currently an investor or advisor to several technology and Internet companies including ZEFER Corp., University Access Inc., RenalTech, Crimson Soutions and PrimeSource. He has been using the Internet since 1977, was a co-founder of FTP Software in 1986, and worked on the design team of Harvard Business School's "Foundations" program. Stever holds an MBA from Harvard Business School and a computer science degree from MIT. His Web site is a http://www.venturecoach.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.