earned income for the nonprofit sector sonya ulibarri // august 10, 2012
TRANSCRIPT
EARNED INCOME FOR THE NONPROFIT SECTOR
Sonya Ulibarri // August 10, 2012
Earned Income
Earned Income: Income earned when there is a direct exchange of product, services, or privilege for money.
Earned Income Strategy: An attempt by a nonprofit to cover part of its costs by capitalizing on the earned income potential of its programs, products, or services.
* Fact: Approximately 70% of the total income generated by the nonprofit sector in the US ($1.4 trillion) comes through earned income sources.
Two Types of Earned Income:
1. Related. Income is tax-exempt.
2. Unrelated. Liable for tax on income.IRS criteria for defining a source as unrelated:
A trade or business. Regularly carried on. Not related to furthering the
exempt purpose of the organizations.
Social Enterprise
Social Enterprise: An organization or venture (within an organization) that advances a social mission through market-based strategies. These strategies include receiving earned income in direct exchange for a product, service, or privilege.
*Source: Social Enterprise Alliance
History of Social Enterprise in the US
Steady growth since the 1970s. Most rapid growth: 1990s to early 2000s
(the # of social enterprises quadrupled) Impact of the 2008 Recession still to be
seen: Recognized need to diversify resources. Connection between sustainability and the
ability to self generate income.
Assets decreased, leaving less resources to invest in new strategies.
Most organizations (75%) currently operating social enterprises are planning to launch another.
Top Five Social Enterprises
The top five social enterprises operated by nonprofits
in the US are: 1. Education and Training2. Retail // Thrift Store 3. Consulting Services4. Food Service // Catering 5. Arts Venue
Top Five Missions
The top five organizational missions operating social
enterprises in the US are: 1. Workforce Development2. Housing3. Community & Economic Development4. Education 5. Health
Social Enterprise Revenue
$250k and under $5M and over0%
10%
20%
30%
40%
50%
60%
70%
% of Revenue from Earned Income Sources
by Budget Size
Revenue Indicators
The largest indicator of amount of revenue generated
by nonprofit social enterprises is length of time the venture has been operating.
80% of organizations who launched prior to 1970 earn on average more than $1 million dollars annually.
80% of organizations who launched after 2000 earn less than $500k annually.
Capital for Social EnterprisesTop Sources of Capital for Social
Enterprises: 1. Foundations.2. Individual Donors.3. General Operating // Operating
Reserves.
* Organizations report (surprise, surprise) that the biggest challenge to launching and growing a social enterprise is: funding.
Mission Income
High Mission // High Income
High Mission // Low Income
Low Mission // High Income
Low Mission // Low Income
WHAT IS THE POTENTIAL & THE PRIORITIES OF YOUR SOCIAL ENTERPRISE?
Key Opportunities & Benefits• Double/Triple Bottom Line (people. planet. profit.)• Organizational Sustainability• Ability to leverage other funds• Leadership Development• Internal Investment• Public Awareness/Marketing• Outreach & Community Engagement• Business Savvy • Increased Capacity• New Allies• Professional Development
Key Challenges
Sales and Marketing Financial Issues Human Relations Operations Organizational Culture
* People won’t support the social enterprise solely for mission. If it is both high quality and cost competitive, the mission will be a deciding factor.
Group Identified Challenges
The following challenges/obstacles/threats wereidentified by workshop participants:
• Lack of Resources/Other Pressing Needs• Lack of Expertise• Shift of Power within Organization• Top-Down vs. Bottom-Up Approach• Change of Expectations• Requires Honest Conversations about Money• Transparency• Accountability: Traditional Constituents or New
“Customers”
Steps to Launching a Social Enterprise
Understanding Motivation (Income or Mission?)
Business Plan // Market Research Identification of Start-Up Financing Developing an Operational Plan Outline Potential Scalability Invest in Ongoing Training
Business // Impact Plan
Articulates Mission. Establishes actions to achieve goals. Outlines performance targets. Projects resources, costs, and revenue. Defines Strategy.
Needs of Target Population/Customers Market Conditions State of Industry Operating Environment
Questions to Ask
1. How does the organization balance mission and profit and avoid mission-drift?
2. What are the potential challenges and threats to the organization or venture over time?
3. What are the opportunities for growth, larger impact, and long-term sustainability?
4. How will the organizational culture need to change to support a new and different venture?
