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Earned Income for the Nonprofit sector

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.

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Earned Income for the Nonprofit sector

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  1. Earned Income for the Nonprofit sector Sonya Ulibarri // August 10, 2012

  2. 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.

  3. Two Types of Earned Income: • Related. Income is tax-exempt. • 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.

  4. 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

  5. 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.

  6. Top Five Social Enterprises The top five social enterprises operated by nonprofits in the US are: • Education and Training • Retail // Thrift Store • Consulting Services • Food Service // Catering • Arts Venue

  7. Top Five Missions The top five organizational missions operating social enterprises in the US are: • Workforce Development • Housing • Community & Economic Development • Education • Health

  8. Social Enterprise Revenue

  9. 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.

  10. Capital for Social Enterprises Top Sources of Capital for Social Enterprises: • Foundations. • Individual Donors. • General Operating // Operating Reserves. * Organizations report (surprise, surprise) that the biggest challenge to launching and growing a social enterprise is: funding.

  11. Mission Income WHAT IS THE POTENTIAL & THE PRIORITIES OF YOUR SOCIAL ENTERPRISE?

  12. 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

  13. 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.

  14. 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”

  15. 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

  16. 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

  17. Questions to Ask • How does the organization balance mission and profit and avoid mission-drift? • What are the potential challenges and threats to the organization or venture over time? • What are the opportunities for growth, larger impact, and long-term sustainability? • How will the organizational culture need to change to support a new and different venture?

  18. Resources Social Enterprise Alliance www.se-alliance.org

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