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posted on Feb 14, 2018
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Donor dollars are drying up and government grants are harder to get, but your charity still serves a need which is not being served any other way. How do you keep going? Shift part of your income stream to earned income. In other words, start a Social Enterprise.

A Social Enterprise is “a community-based business that sells goods or services in the market place to achieve a social, cultural, and/or environmental purpose; it reinvests its profits to maximize its social mission.” [1] Many charities and non-profits already earn a portion of their annual revenues through social enterprise. It is a robust income stream which is not vulnerable to donor fatigue or changes in government.

Earned income is not new.

In fact, when membership dues are factored in, earned income was responsible for 40% of the money flowing into the social sector in 2008, the most recent year for which we could find data. An increasing number of charities and non-profits appear to be including this income stream in their strategies. The chart below shows the wide range of activities which you would think of engaging in, to diversify your revenue stream.

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The important thing about this framework is that it encourages wider thinking about funding the core activities of your organization. It can be tempting to focus on one income stream, such as government grants, or one form of impact assessment, such as Social Return on Investment model. The reality is becoming more complex. Consider, for example, a case in which a non-profit has access to the right capital, but cannot recruit the appropriate talent. Alternately, consider what would happen if a charity had the right capital and talent to meet an identified market demand, but the regulatory framework was dis-enabling of their fee-for-service model. In such cases, the endeavour would have a low probability of sustainable success.

There are four fundamental pillars of the Earned Income Framework, identified by Imagine Canada.

1.      Financial Capital

2018-02-14_Money.jpgThis refers to the financial resources required to start, maintain, or expand earned income activities. In Ontario, access to external capital is the top challenge facing would-be social entrepreneurs. [3] Capital can include financial products such as grants, loans, investments, Social Impact Bonds, and others. There are a number of Canadian organizations which work within this pillar, either as lenders, performing research, or offering support. Locally to Ottawa, the Centre for Social Enterprise Development and the Ottawa Community Loan Fund are good places to start.

2.      Human Capital

2018-02-14_Person.jpgEntrepreneurship requires specific skills, which are not necessarily found on the staff teams of most current charities and non-profits. Sustainable success will depend on hiring and retaining people who can develop business plans and products, market and sell products or services, and manage communication with the wide range of stakeholders involved in the endeavour’s success.

 

 

 

3.      Market Demand

2018-02-14_Market.jpgIt is essential to determine, early in the process, if your proposed product or service is actually something that people will pay for, and at what price. Your customers will often be different people from your donors, funders, or perhaps even your clients. This means you will need to invest effort into researching and developing markets, to understand the market itself (i.e. who will buy your product) and the competitive landscape. Often, organizations need to invest in creating market demand, such as through advertising. This needs to be part of your calculation of necessary financial capital.

 

4.      Regulatory Environment

2018-02-14_Legal.jpgCharities and non-profits are governed by a number of different regulations at the provincial and federal level. These regulations are changing gradually, to become more reflective of the needs of social entrepreneurs. It is important to consult with a lawyer to understand the impact of your earned income plans on your charity or non-profit status. This status will also affect the type of financing you can apply for, your incorporation guidelines, and reporting requirements.

 

Ultimately, an increase in earned income will likely become an ever-more important part of your organization’s long-term financial sustainability plan. To get started, come to one of our upcoming workshops:

Click here to register Thursday, April 5, 2018. 9:00 a.m. to 12:00 p.m.

Click here to register Thursday, October 18, 2018. 9:00 a.m. to 12:00 p.m.

Related blog post:

So you want to integrate Social Enterprise into your organization. How are you going to do it?

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[1] "About the SECC," Social Enterprise Council of Canada, 2018. [Online]. Available: http://secouncil.ca/index.php/about/. [Accessed 31 January 2018]. [2] Imagine Canada, "Earned Income Framework," June 2013. [Online]. Available: http://sectorsource.ca/sites/default/files/resources/ic-research/earned-income-report-en_2013.pdf. [Accessed 31 January 2018]. [3] P. Chamberlain, K. Gillis, T. Prindiville, O. Bechard, M. Ulhaq, P. R. Elson and P. V. Hall, "Enterprising Change: Report of the 2015 Social Enterprise Survey for Ontario," 2015. [Online]. Available: https://ccednet-rcdec.ca/sites/ccednet-rcdec.ca/files/2015-se-survey-ontario-report-enterprising-_change.pdf. [Accessed 7 February 2018].
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