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 Training 2. Retail // Thrift Store 3. Consulting Services 4. Food Service // Catering 5. Arts Venue

Top Five Missions The top five organizational missions operating social enterprises in the US are: 1. Workforce Development 2. Housing 3. Community & Economic Development 4. Education 5. Health

Social Enterprise Revenue

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 Enterprises Top 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 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 were identified 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?

Resources Social Enterprise Alliance