Although social enterprises are not new, they are increasingly popular with non-profits seeking to diversify revenues and create value far greater than economic profit alone.
"In the last five to ten years, governments have significantly reduced the funding they provide to charities, and after the last economic downturn, donations from corporations and individuals also declined," says Cathy Barr, senior vice-president of Imagine Canada, a national charity that helps non-profits achieve their missions. "With the precariousness of these two traditional funding sources, charities are looking to a third area – earned income through a social enterprise – to increase and diversify revenues."
Susan Manwaring, partner at Miller Thomson LLP and national chair of the firm's charities and not-for-profit group, says that while social enterprises are perceived as a new way of doing things, in reality, many charities have been generating revenue from sources beyond government grants and philanthropic donations for a long time.
She cites Vancouver's YWCA Hotel, where funds generated by the hotel support the Y's community programs, and Goodwill, which hires people with barriers to employment and uses money generated from its stores to fund programming, as examples of traditional charities long involved in social enterprise.
What's new, however, is the growing belief that this model offers a powerful way to use entrepreneurial business thinking to solve complex social challenges while supplementing revenue streams.
Ms. Manwaring says that non-profits need to be aware of the legal and tax implications of running a revenue-generating activity. Under current legislation, charities cannot have investors and they must comply with Income Tax Act regulations that may restrict the types of business they can operate to generate revenue. Starting a for-profit organization to run a social enterprise also has drawbacks, as for-profits are generally not eligible to receive government funding or philanthropic donations.
To overcome these limitations, she says, jurisdictions like British Columbia and the UK are developing hybrid models that allow organizations focused on providing social benefits to access investors and capital not typically available to non-profits.
Social enterprises also need to bring business thinking to their activities, says Ms. Barr, who recommends that charities wanting to move into this sphere should carefully consider their options.
"Go slow, do your homework, think about all the business aspects and identify where you can access capital to get started. But don't let all the details stop you: think and act boldly."
Her advice comes from first-hand experience. Several years ago, Imagine Canada launched its own social enterprise when it borrowed against a line of credit to develop Grant Connect, a research database to help non-profits identify sources of funding. Revenues generated by sales of Grant Connect support Imagine Canada's work in the charitable sector.
Ms. Manwaring says that social enterprises can play an important role in how we improve our communities, but cautions that they aren't the only solution and they certainly shouldn't be viewed as a replacement for government's responsibility to fund social programs.
"However," she says, "if there is an opportunity to run a revenue-generating activity that supports a community or contributes to the better good, that's a wonderful thing."
Susan Manwaring SUPPLIED