Your organization is already running a social enterprise. That’s hard work! You must constantly manage both margin and mission, balancing the goal of financial sustainability with the needs of your social, cultural or environmental purpose – the famous “double bottom line”. You may be at one of the last two stages of the Social Enterprise Development Path shown below. You may find yourselves needing more skills building, to help you expand your markets, manage your finances, demonstrate the impact of your social enterprise, and build a sustainable business.
The Social Enterprise Development Path
(from Canadian Social Enterprise Guide, Enterprising Non-Profits)
Networking with your peers can help you share your challenges and find out how others have resolved them. Social Enterprise Toronto (previously called the Social Purpose Enterprise Network of Toronto) offers business networking and peer support opportunities for enterprise staff, including collaborative marketing opportunities and professional development events.
We recommend you take as many sales, marketing and customer relations workshops and courses as you can. Not everything will be directly relevant to your enterprise, but the more you know about identifying customers, promoting to them, getting them to buy your products and services, and keeping them as repeat customers, the more likely your business is to succeed.
You could also join your industry association and take advantage of their training programs as well as networking opportunities.
You should sign up to as many relevant supplier lists as possible. For example, in Toronto, you can register with the City of Toronto’s Supplier Information Sessions
All levels of government in Canada post large public tenders on a centralized web site called MERX, Canadian Public Tenders. You can register for free downloads of federal government tenders, although fees apply to provinvical, municipal and other tenders, as well as other services.
Your social enterprise is a business, and you will need business financial systems to track sales and profitability. Most businesses need daily or weekly information, so setting up your own accounting system, separate from your organization’s accounts, is desirable.
You may also find it useful to separate your business costs from your social costs (such as training, additional staffing, etc.). This allows you to:
- Determine if the business side of your social enterprise is making a profit
- Show your funders that they are supporting the social side of your enterprise, not the business side
- Decide the optimal balance between business and social costs
- Analyze how the two different cost categories will be affected by expansion
The Toronto Enterprise Fund has developed a methodology for separating business from social costs, and devised a metric, called “business cost recovery (BCR)”, for measuring financial sustainability. Check out our financial planning worksheets, or visit Demonstrating Value's Social Costs Worksheet.
Knowing what your outcomes are is an important part of managing your social enterprise. Increasingly, non-profit organizations are being asked to measure and demonstrate their impact. Some stakeholders are even asking for Social Return on Investment (SROI) calculations. Here are some sites that can help you learn how to track, measure and report the impact of your social enterprise:
City of Calgary, SROI and Other Initiatives
The Toronto Enterprise Fund`s definition of financial sustainability for a social enterprise is 100% Business Cost Recovery. This is the point at which sales revenue equals business costs, and indicates that:
- The business is breaking even (if Business Cost Recovery exceeds 100%, the business is making a profit)
- Funding and donations are supporting social costs only
There are many factors that contribute to sustainability. As the manager of a social enterprise, you must:
- Price your products and services to make a profit (price must exceed cost of sales)
- Increase your sales revenue by expanding your markets
- Manage your variable and fixed costs
A word about self-sufficiency:
Self-sufficiency is the point at which sales revenue exceeds both business and social costs. Few enterprises that employ people who are marginalized are able to achieve self-sufficiency. Their social costs are so high, on average equal to their business costs, that they would have to achieve operating margins of 50% or more to cover these costs, which is an unlikely scenario. A very small number of social enterprises have succeeded at becoming self-sufficient by achieving scale ($1 million in sales or more) and by keeping the relative size of their social costs low – under 33% of total costs or lower.