Sustainability
Part Five
PSU Social Enterprise Magic Bus India 2010
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PSU Social Enterprise Magic Bus India 2010
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Double Bottom Line
Social Enterprises must balance their social and
financial objectives
Financial
Viability
PSU Social Enterprise Magic Bus India 2010
Social
Impact
SE Earned Income Strategies
• Fee-for-Service
 Fees that paid directly by clients and beneficiaries such
as tuition, housing, clinical services, interest on loans
(microcredit).
 Fees may also come from a third party who is paying
for services for the client or beneficiary. The third party
may include: a donor, public welfare from the state, or
nonprofit insurance fund
• Sales
 social enterprises may sell products, for example
handicrafts made by clients or fresh fruit grown by
small holder farmers. Services rendered by clients
such as janitorial or landscaping done by mentally
disabled people.
PSU Social Enterprise Magic Bus India 2010
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Program – Related Revenue
Products
and
Services
Housing Works sells donated used clothing and books
in its NY retail shops staffed by people with HIV/AIDS.
Franchise
Juma Ventures owns Ben & Jerry's retail and
concession franchises to provide skills/job training,
and employment of at risk youth.
Market
Aggregation
Grameen Bank in Bangladesh receives discounted
rates from AT&T; leases Grameen Phones to poor
entrepreneurs who sell cell time in their villages.
Joint
ventures
3M shares product ideas, R&D and marketing
assistance with Minnesota Diversified Industries
(MDI). Proceeds support MDI's programs for mentally
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& physically disabled.
Rubicon Home Health Care has contracts to provide
in-home care services to elderly, AIDS patients, etc.
PSU Social Enterprise Magic Bus India 2010
Revenue model
• What is the revenue model of your SE?
• What is the social purpose of your
enterprise?
 What type of impact are you trying to achieve?
 Who benefits and how?
• What products or services are you selling?
 Who are your customers?
• How is your social enterprise positioned in
the market and community?
• Diagram your SE revenue model
PSU Social Enterprise Magic Bus India 2010
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Financial Management &
Accounting
What do you think?
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PSU Social Enterprise Magic Bus India 2010
SE Financial Management Problems
•
•
•
•
•
Low financial management acumen
Driven by donors (fund accounting)
Misallocation of expenses
Hidden assets / hidden subsidies
Do not give an accurate picture of financial
performance
 Overstates financial performance
 Understates financial performance
• Can drive managers to make the wrong decisions
 Growth
 Capital needs and requirements
 Investment/divestment
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PSU Social Enterprise Magic Bus India 2010
Subsidies
• Volunteer time
• In-kind
 Infrastructure, professional fees, products
• Low performance (to industry standard)
• Social program costs
• Staff time spent on enterprise and allocated to
other budgets
• Overhead and back office
• Embedded social costs
• Grants – reflected in subsidize prices
• R&D
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PSU Social Enterprise Magic Bus India 2010
“True” Cost Accounting
Quantifying Social Costs
Quantifying subsidies
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PSU Social Enterprise Magic Bus India 2010
SK
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Financial Projections
$$$
Social Enterprise
Breakeven Point
Private Business
Breakeven Point
SE Revenue
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SE Expense
Business Expense
PSU Social Enterprise Magic Bus India 2010
Business revenue
Years
SK
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Social Enterprise P&L
Income
In 000s
Sales
$515
Expenses
12
Income
In 000s
Grants
$695
Wages (clients)
$200
Expenses
Training
$30
Training
$150
Job coaches
$60
Job coaches/mentors
$120
25% ED
$20
Staff
$160
Rent + utilities
$60
Rent + utilities
$60
Back office expense
$40
Consulting
$45
Business manager
$80
Health services
$100
Marketing
$20
Fundraising
$50
Supplies
$10
Total
$695
Total Expenses
$550
Required Subsidy
$695
Profit/Loss
($35)
Consulting
$45
Health services
$100
Social costs
$145
Total social costs + exp
$695
PSU Social Enterprise Magic Bus India 2010
Required Subsidy
$180
Income
In 000s
Sales
$515
Socio-economic expenses
Wage premium to clients
$40
Soft skill training
$30
Job coaches
$60
Shared expenses
25% ED
$20
Rent + utilities
$60
Back office expense
$40
Business expenses
Business manager
$80
Hard skill training
$30
Marketing
$20
Wages
$160
Supplies
$10
Total Expenses
$515
Profit (loss)
($35)
Social program costs
13
Counseling & Health services
$145
Social costs
$180
Required
Subsidy
$1802010
PSU Social
Enterprise Magic Bus India
A closer look:
• socio-economic costs are
social program costs covered by
running a social enterprise;
objective is NOT to make profit
but cover more social costs
through biz activities
• Share expenses enable parent
organization to leverage assets
and have unrestricted income
• Business expenses pure
business cost, but also underwrite
social objectives—i.e. wages to
client workers
• Social costs can be allocated
separately and subsidized with
grant funding.
Results
• Share costs converts restricted income into
unrestricted income regardless of revenue
• Sustainable program strategy
• Shifts financial paradigm from 100% deficit to
revenue generation/declining deficit
• Marketing/grant raising vehicle for
supplementary social costs
• Increases financial rigor and business acumen
• Leverages social programs and assets (trained
clients)
PSU Social Enterprise Magic Bus India 2010
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External
$£
$£
Profit used to fund
social program
activities and/or
parent organization
Breakeven Point
Time
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More equity-like
Implications for Financial Management
Grants
Social Venture Capital Funds
Venture Capital
PRI / Recoverable Grants
Forgivable Loans
SRI Funds
Below-Market Debt
More debt-like
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PSU Social Enterprise Magic Bus India 2010
Market-Rate Debt
Social Investment Choices
Client
Productivity
Return on Investment?
$$$
$
A Job
17
Hard Skills
Soft Skills Credit/Insurance
PSU Social Enterprise Magic Bus India 2010
Literacy
Heath
Housing
SK
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