PSU Social Enterprise Magic Bus India 2010 1

SustainabilitySustainability

Part Five

PSU Social Enterprise Magic Bus India 2010 2

PSU Social Enterprise Magic Bus India 2010

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Double Bottom LineDouble Bottom Line

FinancialViabilityFinancialViability

SocialImpactSocialImpact

Social Enterprises must balance their social and Social Enterprises must balance their social and financial objectivesfinancial objectives

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SE Earned Income StrategiesSE 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.

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Program – Related RevenueProducts and Services

Housing Works sells donated used clothing and books in its NY retail shops staffed by people with HIV/AIDS. Rubicon Home Health Care has contracts to provide in-home care services to elderly, AIDS patients, etc.

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 & physically disabled.

PSU Social Enterprise Magic Bus India 2010

Revenue model 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

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Financial Management & Financial Management & Accounting Accounting

What do you think?

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SE Financial Management SE Financial Management Problems 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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SubsidiesSubsidies

• 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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““True” Cost AccountingTrue” Cost Accounting

Quantifying Social CostsQuantifying subsidies

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Financial Projections Financial Projections

SE Revenue SE Expense Business Expense Business revenue

$$$

Years

Social EnterpriseBreakeven Point

Private Business Breakeven Point

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Social Enterprise P&L Social Enterprise P&L Income In 000s

Sales $515

Expenses

Wages (clients) $200

Training $30

Job coaches $60

25% ED $20

Rent + utilities $60

Back office expense $40

Business manager $80

Marketing $20

Supplies $10

Total Expenses $550

Profit/Loss ($35)

Consulting $45

Health services $100

Social costs $145

Total social costs + exp $695

Required Subsidy $180

Income In 000s

Grants $695

Expenses

Training $150

Job coaches/mentors $120

Staff $160

Rent + utilities $60

Consulting $45

Health services $100

Fundraising $50

Total $695

Required Subsidy $695

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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

Counseling & Health services $145

Social costs $180

Required Subsidy $180

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.

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ResultsResults

• 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)

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ExternalExternal

Profit used to fund social program activities and/or parent organization

Breakeven Point

$£

$£

Time

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Dev

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Grants

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Rep

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Forgivable Loans

Market-Rate Debt

Below-Market Debt

SRI Funds

Social Venture Capital Funds

PRI / Recoverable Grants

More equity-like

More debt-like

Implications for Financial Management

Venture Capital

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Social Investment ChoicesSocial Investment Choices

A Job Hard Skills Soft Skills

Client Productivity

Return on Investment?

Credit/Insurance Literacy Heath Housing

$ $$$