The Social Entrepreneur's Playbook, Expanded Edition: Pressure Test, Plan, Launch and Scale Your Social Enterprise by Ian C. MacMillan & James D. Thompson

Author:Ian C. MacMillan & James D. Thompson [MacMillan, Ian C.]
Language: eng
Format: mobi
Tags: BUSINESS &#38, ECONOMICS/Entrepreneurship
Publisher: Wharton Digital Press
Published: 2013-11-11T14:00:00+00:00

CHAPTER 10

Specify Deliverables

In chapter 6 we introduced the concept of the Deliverables table. This table prompts you to list all major activities that must be completed in order for your venture to be able to deliver the benefits, or social impact, you have in mind. We asked you to consider the types of costs you might incur. Here, we begin to attach some actual numbers to these types of costs. This process will allow you to develop a plan that looks at the cost and revenue flows your venture will generate each year once it is successful. If these cost estimates and performance projections look plausible, begin looking at how to launch your venture. If not, take a step back and invoke your enterprising mind-set to rethink and create a more plausible way to move your enterprise forward.

Calculating Required Revenues, Maximum Allowable Costs, and Maximum Allowable Assets

If you want support from investors, funders, banks, suppliers, and other stakeholders, you will need to have a convincing ROS and ROA. In this section, you’ll determine the performance boundaries for your venture by using your framing numbers from chapter 9 to specify what your minimum revenues must be, what maximum costs are allowed, and what the maximum amount of funding (for assets) should be in order to accomplish the profit targets and adequate ROS and ROA targets.

Before we launch into this analysis, we want to share some key ideas for running a disciplined operation. To keep a business sustainable, you need to generate more cash than you spend. There are typically four places where you need to generate surplus cash. Not all four may be relevant to your enterprise, but you should consider which apply and whether there are other potential unanticipated costs.

Operating surplus. You need to bring in more funds than you spend in running the operation. This is pretty straightforward and easy to see—in the case of Ilona, she needs to get more money from her feed business than she lays out for materials, wages, power, rent, maintenance, and so on.

Asset replacement surplus. In the event that you require assets such as machinery, office supplies, IT equipment, and trucks, recognize that these eventually wear out, and you will need to generate enough funds to replace them. To do this, you need to charge yourself proportionate depreciation costs each year, and that is the surplus you need to generate from operations.

Inventory and receivables surplus. If you have a physical product, to protect yourself from the uncertainties and unpredictability of demand for your offering and from delays in supply of your materials, you need to build up raw materials and finished goods inventories—and these require funds. In addition, you will need to set aside funds to absorb the cash flow delays while you wait for your beneficiaries to pay.

Debt and investment servicing surplus. If you are able to, and decide to take out loans, you need to generate additional surplus to cover the interest on them and eventually pay them down. Even if

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