Social Enterprise and Financial Sustainability

This chapter emphasizes social entrepreneurship as a mission-driven enterprise and a strategy for financial sustainability in nonprofit organizations. The chapter provides introductory information on the field of social entrepreneurship, social entrepreneurship models, and frameworks to develop a business plan for a social enterprise, as well as management strategies.


Simply put, the term "social enterprise" refers to a business activity intended to generate profit to finance a social, educational, cultural, religious, or charitable cause. A social enterprise is a for-profit business whose primary purpose is to reinvest its profits in not-for profit activities. In other words, a social enterprise engages in trading activities or formal business trade practices for the benefit of the community.

Figure 13.1 is a classic illustration of what a social enterprise stands for: a business activity that must generate profits and returns to invest in social activities that will benefit the clients of a nonprofit organization. A social enterprise can be a formal business entity owned by a nonprofit organization for a social purpose or an earned-income business to generate revenue that can support a social cause.

Social enterprise as a business.

FIGURE 13.1 Social enterprise as a business.


The concept of social enterprise has been on the rise all over the world. Many social problems have increased in intensity and complexity, therefore, they require entrepreneurial approaches that are most likely to create social value with limited resources. Societies worldwide seek innovative approaches to address persistent social, educational, health, and environmental problems that affect their communities and that are yet to be tackled by business or public agencies. Many nonprofit organizations are faced with the challenges of confronting these social problems and attempting to bring sustainable solutions to such issues. Financial pressures on most nonprofit organizations have increased in recent years due to the financial crisis and are unlikely to lessen. Costs have been rising faster than inflation. Societies strive to find better ways to provide socially important goods and services, and take advantage of opportunities by testing new approaches and organizational models to achieve social goals. Social entrepreneurship has proven to be one of the best options available to nonprofit organizations to reach that end, because it includes the social purpose for nonprofit organizations and the potential benefits of entrepreneur-ship in terms of innovation, efficiency, high performance, and economic sustainability. A social entrepreneurship approach has the advantage of generating resources to enhance the effectiveness of nonprofit activities and make significant and sustainable contributions that change the lives of disadvantaged people. Social entrepreneurship is rooted in the broader field of entrepreneurship and has drawn on the definition of entrepreneurship as the pursuit of opportunities to further a social purpose. In other words, entrepreneurial organizations focus on opportunities, not resources. Social entrepreneurship is an innovative, social-value-creating activity that can help diversify the revenue stream of the nonprofit organizations in ways that fund-raising or grant seeking cannot.


A social enterprise is a hybrid organization mixing nonprofit and for-profit elements. The profit element meets all the characteristics of a for-profit business. As such, a social enterprise must exist as a legal entity and satisfy all the requirements necessary to start a new business. A social enterprise requires a business that outlines its development, including projections of when it will start making a profit. As a business, profit is essential for a social enterprise. Without profit there is no social enterprise. The reason that a social enterprise exists is to support the other side of the coin, which is its nonprofit nature. There must be profit to support the social purpose of a social enterprise. In that sense, a social enterprise needs the appropriate business discipline in the conduct of its operations, including, but not limited to, the quality of products or services, the satisfaction of its clients or customers, and of the maintenance of sound accounting and financial management principles. However, it must be stated clearly to everyone that a social enterprise is not a charitable entity. Clients or customers should not expect to walk into a social enterprise and obtain products or services for free. There can be bargaining. There can be special donations to individuals desperately in need. However, a social enterprise must cultivate a strong base of clients or customers who have the ability to pay for products or services. Lastly, a social enterprise is accountable to its founding nonprofit organization, the service users, employees, and the public in general. The assets of a social enterprise belong to the community.

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