Hi there. Welcome to this blog. If you’re reading this, it’s probably because you’re curious about social enterprises. Maybe you run a program. Maybe you run a charity or maybe you run an organization and you’re curious about whether it IS a social enterprise or whether it COULD BE a social enterprise. I really want to help you find an answer this question. I’ve been part of the social enterprise space for over ten years and I am still confused about it. I have attended conferences, both local, national, and even international conferences about social enterprises, and I have yet to find a consistent definition. And so I built out this flowchart to help myself try to get a handle on the question, and also to help others who are curious.
Let me orient you to this ‘Are you a social enterprise?’ flowchart. The first question is: ‘Does your organization have a social mission that guides everything that you do?’ If no, then you cannot really be a social enterprise. I think this is pretty self-explanatory.
If you answer yes, then on to the next question ‘Do you pay people and do you have a business number?’ This is essential in terms of figuring out credibility and administration. If you do not pay people and you don’t have a business number, you’re not a social enterprise.
If you do however, that means that you are a Social Purpose Organization, and you MIGHT be running a social enterprise, and so you get another question: ‘Do you generate revenues from the sale of goods in a way that contributes to your mission?’ If you don’t, then you’re not a social enterprise.
If you do, then on to the next question: ‘Do your revenues cover the full direct costs of your business?’ A lot of organizations won’t be able to answer this easily because they don’t have the accounting systems in place that are sophisticated enough to answer this. But maybe yours can. And so for the next few questions you really will need those accounting systems in place. We will cover that in a future blog, but if you do have this information about your finances, then we can move into the next layers of inquiry.
‘Do your revenues cover the full direct costs of your business?’ This refers to direct costs associated with labor and materials. So if your revenues do not cover the full direct costs of your enterprise, that means that you’re running a charitable program. And that can be great because there is a place for charitable programs. But to be clear, it’s not a social enterprise. And this will have serious implications for growth.
If you answered yes, then you move on to the next question: ‘Do your revenues cover the full indirect costs of your business?’ This often includes the rent, insurance for both the social enterprise activities, and for the workers if you’re covered by WSIB, and also a portion of any overhead of the Executive Director and any other support staff.
If you answer no, that means that you’re running a partial cost-recovery social enterprise. What that means is that what you have is a social enterprise, but you are only recovering a portion of your costs, which has big implications for your sustainability and growth potential.
And on to the final question: ‘Do your revenues cover more than the full indirect costs of your business, allowing you to reinvest profits into furthering your mission?’ If you answer no here, this means that you’re running a social enterprise but it’s an Employment Social Enterprise so the primary benefit to the social enterprise is creating employment. Likely for people who are marginalized or highly barriered in some way (such as EcoEquitable, a social enterprise that I have been running for several years now).
If you answered yes, this is AMAZING! You are running a unicorn, a profitable social enterprise! Congratulations. This is really something incredibly special.
The reason I built out this flow chart is because we don’t have a sophisticated or nuanced language to talk about the diverse range of options within the social enterprise landscape. A lot of investors and funders and people in the community think that running a social enterprise means trying to create a unicorn. The reality is that social enterprises come in different shapes and with different business models, and we need to be able to tease those out so that we can have better, more realistic expectations of what social enterprises are doing, but also to be able to congratulate the social enterprise that don’t always have financial gains, they may be contributing to the community in other ways. And we need to find ways to quantify that and celebrate all of the ways that we can succeed in social purpose work.
Based on this chart, over the next several months we will be publishing a series of blog posts to support organizations navigating their social enterprise journey. Feel free to leave a comment or get in touch to continue the conversation, and watch this space for upcoming posts on this topic!
Special thanks to Heather Simpson, Kate Ruff and Buy Social Canada for helping me develop these ideas.
Upcoming Topics:
- Implications For Growth in a Social Enterprise
- Best Practises for Setting Up Decent Work
- Covering Direct and Indirect costs
- Five common misunderstandings about social enterprises
- What is an Asset Lock? And How Can It Help Your Social Enterprises
- The Value of Cheap Mistakes: the Case for Feasibility Plans
- And more!
Watch this space for new blog posts, and feel free to leave a comment or get in touch to continue the conversation!