Income Models and Sources of Funding & Finance for Social Enterprises

Theme: Promoting of social entrepreneurship 

 

Title: Income Models and Sources of Funding & Finance for Social Enterprises

 

Developed by: CARDET, Cyprus

 

Based on:  Alter, S. A., 2006. Chapter 10: Social Enterprise Models and Their Mission and Money Relationships, in Social Entrepreneurship ed. A. Nicholls

  Irwin, W., Chapter 6 - The Financing of Social Enterpise. In: Gunn, R. and Durkin, C., Social Entrepreneurship - A Skills Approach. Bristol, UK: Policy Press, pp. 31-44.

  Leadbeater, C., 2007. Social enterprise and social innovation: Strategies for the next ten years. A social enterprise think piece for the Cabinet Office of the Third Sector.

  SenScot, 2010. A business planning guide to developing a social enterprise.

  Smallbone, D., Evans, M., Ekanem, I. and Butters, S., 2001. Researching social enterprise. Great Britain, Small Business Service.

  Zastawny D., 2014. Social enterprise must not prioritise social aims over viability. The Guardian.

 

Aim: 

  • Understand the different income models used by social enterprises.
  • Learn about the different sources of funding and finance.

 

The level of language knowledge: Level B2.

 

Description: 1. Social Enterprise Income Models - Mission Related Trading 

 

                                                 

Sounce: Alter (2006)

 

“Although social enterprises make up only a small part of the total enterprise sector of the economy, they matter in the overall business ecology because they are pioneering approaches to show how business can operate successfully while also taking into account social and environmental issues. Social enterprises are one vital source of new business approaches to fair trade, social inclusion, community, regeneration, creating jobs for those most marginalised in labour markets and environmental sustainability.” (Leadbeater, 2007)

 

There are three income models used by social enterprises (Alter, 2006):

  1. Embedded (The mission is closely tied with how they generate their income).
  2. Integrated (The mission is not directly aligned with how they generate their income).
  3. External (The mission is not related with how they generate their income).

 

The appropriateness of each model depends on the sector of operation and its applicability on the legal and regulatory framework.

 

2. Potential Sources of Income for Social Enterprises

 

Social enterprises can gain income from a variety of sources. These sources can be separated to Non-Commercial and Commercial (Irwin, 2014; SenScot, 2010).

 

Non-Commercial Income Sources:

  • Grant aid: e.g. public sector funders, charitable trusts, Big Lottery, Arts Council.
  • Service Level Agreements: Outcome related grants where the public sector provides a ‘fee’ for a specified service.
  • Donations: Charitable giving by individuals or businesses (can be cash or ‘in-kind’).

 

Commercial Income Sources:

  • Sales: Selling good or services to individual customers.
  • Contracts: Legally binding contractual agreements to supply goods and services to other organisations, business or public agencies.
  • Sponsorship: Receiving payment in return for advertising or publicity (Social enterprises have to be aware of the types of organisations they want to work regarding business ethics).
  • Crowdfunding: Raise capital from the public using crowdfunding platforms - The social enterprise should give something in return or else it is a donation.
  • Debt: Including Loans, overdrafts and other commercial lending instruments.
  • Equity: Includes venture capital, business angels and other forms of investment capital. - When looking for investment capital it is important for social entrepreneurs to present their expected social impact using tools like SROI (Social Return On Investment) and Triple Bottomline Accounting.

 

Just like for-profit enterprises, social enterprises should try to be self-sustaining organisations that do not depend on financial donations and grants from governmental bodies, donors, or private organisations. Gaining access to financial resources is therefore essential, whether that is to meet start-up costs or ongoing capital and working capital requirements (Irwin, 2014). A social enterprise should strive to find a balance between achieving both social and financial objectives. Social objectives should not undermine the enterprise’s long-term financial sustainability. “The more sustainable and successful the enterprise is, the more sustainable and successful the social aspect will be” (Zastawny, 2014).

 

3. Mission Drift

 

While government grants and funding are “essential in creating new social enterprises” (Walker, 1995, cited in Smallbone et al., 2001 p.85) a social enterprise might face “Mission Drift” when it focuses its resources on chasing funding to survive rather than allocating them to build the strategic capacity it needs to deliver its social aims. This happens mainly due to the bureaucratic burden associated with managing and monitoring grant funding (Irwin, 2014). “Mission Drift” is the term given when a social enterprise finds that it has moved away from its social mission either by accident or by choice. In order to avoid “Mission Drift by Accident” a social enterprise should always operate based on its social mission and social values. “Mission Drift by Choice” occurs when a social enterprise deliberately changes direction. This might happen due to new social opportunities or as to ensure its financial sustainability.  In any case, “Mission Drift” should be dealt with extreme caution as it might negatively affect the social enterprise’s stakeholders.

 

Learning outcomes: Completing this activity, participants will be able to:

  • Learn about the different sources of income.
  • Learn about the importance of financial independence and Mission Drift.

 

Expected duration: About 15-20 minutes.

 

Task(s): Read the following statements and mark them True or False.

 

 

Go to the task >>

 

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