Community Right to Challenge: Step 3
Building your business case
Once you have the information you need about the service you would like to provide, you will need a business case. This will ensure that your plan for the service you want to develop and take on is feasible (it can be achieved in the short term), sustainable (it will cover its costs and be manageable in the long term) and credible (your organisation has the required skills or can draw on the skills of professionals for the knowledge and capacity to deliver it). If you cannot demonstrate that your plans are feasible or that your organisation is credible, the authority has valid grounds to reject your expression of interest.
The business case will usually be made through a business plan. This explains how the service will be developed and delivered and includes an explanation of the finances of the project, covering both capital (any up front investment costs required) and revenue (ongoing running costs of the service). But the business plan also needs to show WHY you would run the service well, and will need to inspire people.
You may not need to submit your business plan itself as part of your expression of interest or ultimate tender to deliver the service, but the information it contains will still provide vital elements of any such submission.
Elements to think about before you start drafting your business plan
Before you start investigating or writing a business plan for a Community Right to Challenge project, you should stop and think about the following four key elements. These elements do NOT reflect how the business plan should be written, but they ARE the underlying principles that need to shine through your plan.
1. Quality data
The importance of data cannot be overstated. The data in the business planning process and report should include both macro and micro economic influences. The data, if possible, should be derived from both anecdotal and research resources. Whatever you are planning to do, there will be others elsewhere who have done something similar, so if you can identify similar projects and show that your plan is based on facts rather than hypothesis, you will build credibility into your business case. But the data must still relate to your story, rather than someone else’s.
In particular your data should look to reflect information about the needs of user groups. Any expression of interest or ultimate tender to deliver public services is very likely to be scrutinised closely in relation to your understanding of user needs. The more direct research you can reference (whether this is research you may need to carry out yourself, or reports and surveys available carried out by the local authority or other third parties that you manage to source), the stronger your case is likely to be.
2. Sensitivity analysis
Good business planning involves scenarios. This is different to plotting different plans or objectives. Sensitivity analysis is the plotting of one plan and the effects on that plan in good times and bad. Typical sensitivity analysis on the profit and loss and cashflows involves plotting a variance on the business (usually on levels of income, but sometimes also on costs. Increasingly for public service contracts income variance will fluctuate as a result of variance in outcomes under “Payment by Results” methodologies). Such analysis will look at the effects on the business where baseline predications vary by (say) plus 25% and minus 25%.
This will allow you to:
- spot potential problem areas of your business
- develop a more robust business model
- ensure you develop sufficient working capital for all eventualities.
3. Working capital budget
The most overlooked part of planning. Working capital is defined as the cash on hand to conduct business before a profit is realised. Most businesses forgo this planning because they feel it identifies a weakness in the plan. On the contrary, good cashflow (working capital) design and management often allows a business to thrive while others fail. To create this budget, your plan must identify the cash movements over the development period, the transition period (the set up of the service), and during the early stage of delivery where many unknown expenditures are likely to occur and contract payments may be coming in arrears or on the basis of outcomes evidenced. Understanding the cashflow is understanding the business.
4. Integration of resources and vision
Remember that your social outcomes are absolutely part of your business case, and likely to be critical to any use of the Community Right to Challenge – it would be a mistake to think of the business case as simply about making the numbers stack up. Your business planning should investigate and ultimately clearly demonstrate the positive impact your delivery of a service will have in social, economic, and/or environmental terms.
Writing the business plan
The quality of the final business plan will go a long way to determining whether you will:
1. Make a successful Challenge
2. Submit the highest scoring tender in a subsequent procurement process
3. Manage to raise sufficient investment funding (set up costs, working capital) to put the plans into effect.
The key tenets of the business case include:
- Clarity: Give the business plan to a friend or colleague who does not work in the service area you want to take on; do they understand what you are asking for and why?
- Brevity: You should be able to summarise your plan (often called the ‘Executive Summary’) in 1 page. If you cannot state your case in 1 page, you do not sufficiently understand your plan. The length of the whole plan will depend on the nature and scale of the service, but as a guide the main section should ideally not exceed 20 pages. It is recommended that you place supporting data and other documentation into appendices where your audience can view as needed. It is your job to extract the relevant and correlated data and explanations into the main business case. Of course, the length and complexity of your business plan will be different if you want to run a small, straightforward service compared with something larger or more complex.
- Story: The business case must tell one story with several devices:
- Personal experiences: Include real customer/client experience(s) to move the business case beyond numbers, drawing the reader into the plan
- Format: Use formatting to tell your overall story. This includes the provision of extra white space on the page, pictures interlaced with text, and a magazine style layout. Layout is critical to both the perceived competence of your plan and the readability
- Data: This should help to tell your story effectively. Think about using data in different formats throughout the business case (charts, text, pictures)
- Construction: The business plan should cover five areas. These areas are:
- People: Who is implementing the plan and what is their background?
- Market: Who is the client and what is the need?
- Product / Service: What is the business model and how is it delivered?
- Finance: How does your plan work financially?
- Community Benefit: What community benefit will your plan produce? Who will benefit and how will this be measured and demonstrated?
What to avoid
Business planning must be about clearly identifying and then telling your story. This can be a process of discovery. But, as you are business planning, watch out for the following pitfalls:
- Propagation of a bad business model: Don’t force the plan if it does not work. Stop and rethink the basic premise of the plan. Gathering data around a flawed model is only fooling yourself.
- Limited or no working capital: Ensure the working capital budget is robust enough to solve most of the unknowns.
- Missing out: The first thing every business must realise is that cash is king! Proper cashflow planning will go a long way towards keeping you in business.
- Scenario planning without sensitivity: Many organisations develop three scenarios and mistake this for sensitivity analysis. It is only sensitivity analysis if each scenario has the same baseline assumptions for costs and structure, but illuminates the effect on the business of varying income streams and costs.
- Bad formatting: Who wants to read a boring or a poorly constructed plan?
- Not understanding your audience: Often plans are put together as if the audience is the organisation constructing the plan, which it may be at outset for an internal business plan, but over time the plan may need to be re-cast for an external audience(s). If it isn’t, your plan is likely to miss critical data and forget to explain the value created by your ideas.
- Lack of Clarity: Both in story and data, poor business planning usually suffers from a lack of editing.
A note on costing your service delivery
Identifying the true and full costs to your organisation of delivering a new service is always a tricky exercise and you are likely to need to seek external support and advice with this.
Smaller service example – running the local outdoor market
The group interested in taking on the running of their local outdoor market have by now gathered lots of information. As well as talking to the council, they have talked to lots of the stall holders and found out how much they pay per week for different types of stalls. The group now arranges to visit another community organisation in a nearby town who have been running their local market for the past two years.
They get information from that organisation on advertising, insurance, suppliers, and also get to look at their business plan. Using all this information, the group forms a simple plan based on them using their local knowledge and contacts to increase the number of stalls by 20%.
The market does need some staff to help run it, and they know from the council officer that it currently runs at a loss, so they work out that they would still need a small contract fee from the council to make it work, at least for the first year. But they realise that even if they were paid this fee it would still save the council money. The group feels it is ready to make their Challenge and moves to step 4.