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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
3
Double Bottom LineDouble Bottom Line
FinancialViabilityFinancialViability
SocialImpactSocialImpact
Social Enterprises must balance their social and Social Enterprises must balance their social and financial objectivesfinancial objectives
PSU Social Enterprise Magic Bus India 2010 4
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.
PSU Social Enterprise Magic Bus India 2010
5
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
6
PSU Social Enterprise Magic Bus India 20107
Financial Management & Financial Management & Accounting Accounting
What do you think?
PSU Social Enterprise Magic Bus India 20108
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
PSU Social Enterprise Magic Bus India 20109
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
PSU Social Enterprise Magic Bus India 2010 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
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““True” Cost AccountingTrue” Cost Accounting
Quantifying Social CostsQuantifying subsidies
PSU Social Enterprise Magic Bus India 2010 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
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Financial Projections Financial Projections
SE Revenue SE Expense Business Expense Business revenue
$$$
Years
Social EnterpriseBreakeven Point
Private Business Breakeven Point
PSU Social Enterprise Magic Bus India 201012
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
PSU Social Enterprise Magic Bus India 201013
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.
PSU Social Enterprise Magic Bus India 2010 14
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)
PSU Social Enterprise Magic Bus India 2010 15
ExternalExternal
Profit used to fund social program activities and/or parent organization
Breakeven Point
$£
$£
Time
PSU Social Enterprise Magic Bus India 201016
Dev
elop
idea
& m
odel
Grants
Pro
of o
f con
cept
Sta
rt-up
, cap
acity
bui
ldin
g
Ear
ly G
row
th
Sca
le
Rep
licat
ion
Exi
t
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
PSU Social Enterprise Magic Bus India 2010 SKOLL CENTRE FOR SOCIAL ENTREPRENEURSHIP
17
Social Investment ChoicesSocial Investment Choices
A Job Hard Skills Soft Skills
Client Productivity
Return on Investment?
Credit/Insurance Literacy Heath Housing
$ $$$
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