Module 4: Lecture Material – Professor’s Commentary on Social Enterpreneurism,
icon Online Lecture – Professor’s Commentary on Social Entrepreneurism
What is Social Enterprise?
According to the Center for Social Enterprise, Social enterprises are revenue-generating businesses with a twist. Whether operated by a non-profit organization or by a for-profit company, a social enterprise has two goals: to achieve social, cultural, community economic and/or environmental outcomes; and, to earn revenue (see What is Social Enterprise?). Some examples of social enterprises are thrift stores like those operated by the Salvation Army, lawn maintenance programs operated to employ ex-felons, and day care centers.
Most social enterprises do not generate substantial income for their nonprofit although there are exceptions. For example, a thrift store in Jackson, MS generated one-half the income for a addiction treatment center. However, an organization generating 10% of its income from social enterprise is usually thought of as doing well. The reason for including this as a topic in our nonprofit law course is twofold. First, nonprofits do not pay taxes. Usually, nonprofits pay neither income or property tax which gives them an unfair advantage over for-profit organizations. Secondly, nonprofits can run some of their operations at a deficit as long as the deficit is made up through other activities. For profit organizations pay taxes and must operate in the black or they are forced to close.
Is It A New Phenomena?
Social enterprises have been around for a long time. Consider Goodwill Industries founded in in 1902 by Reverend Edger Helms. He collected clothing and items that were fixed-up by poor persons who Reverend Holm employed. Goodwill Industries today provides people with job training and a wage while they get their training. What started out small is today a multi-million dollar operation across the USA.
Delancy Street Foundation operates a number of social enterprises today. Since 1972, it has created the following highly successful social enterprises:
Crossroads Café, Bookstore & Art Gallery
Catering & Event Planning
Delancey Coach (Corporate Private Car Service)
Digital Print Shop
Handcrafted Furniture, Ironworks, Plants & Glass, Ceramics
Landscaping
Moving and Trucking
Paratransit Van & Bus Services
Restaurant
Screening Room
Specialty Advertising Sales
Xmas Tree Sales and Decorating
These provide about 60% of the operating foundations income (See DeLancey Street Foundation) but have the following four goals or purposes:
Teach residents to interact positively with the public;
Help educate the public about the positive changes ex-felons and former substance abusers can make;
Teach marketable skills to the formerly unskilled; and
Earn income.
Forms of Social Enterprise
Restaurants, coffee shops, moving companies, yard services, and maid services are often social enterprise activities entered into by nonprofit organizations but they can be wide ranging. To give you a sense of the range of activities included under this topics, see the Forbes list of top 30 social entrepreneurs.
Examples of Nonprofits and Social Enterprise
Go to the DeLancey Street Foundation Site and note the left of the page where it says “Our enterprises”. Click on each of these and read about the various enterprises.
Thoughts on risk, rules, Regulations, and Social Enterprise Undertakings
To level the playing field and avoid charges of unfair competition, nonprofits should consider establishing a for-profit corporation that it totally controls. By doing this, the organization pays income, property, and sales taxes. It reduces risk to the nonprofit parent company by establishing a management structure to focus on profitability. To establish a social enterprise, the nonprofit should be strong and have reserves to invest initially into the social enterprise. What the nonprofit wants to do is take the surplus profit but it may not be able to do this for 18-36 months. The nonprofit must hold its social enterprise for being self-sufficient unto itself.
As you might suspect, there are many considerations about setting up a social enterprise. (See the Institute for Social Entrepreneurs for good resources.)
Finally, keep these six tips in mind.
Let us think critically about setting up a social enterprise as a totally separate entity but intrinsically related to a nonprofit organization. A marketing study should be performed to establish the feasibility of a service or product. Included in this would be an assessment of applicable laws, rules, and regulations. For example, if one were establishing a coffee shop, a business license would be required, personnel would need food handling permits, and there might be equipment requirements such as commercial grade dish washing equipment.
Moving beyond the marketing study, the question of forming a separate corporation, for profit or nonprofit must be addressed. The articles of incorporation must be drawn up, board of director by-laws written, and there must be a clear understanding of filing other legal documents as an annual report with the secretary of state.
Also, there must be a clear understanding of the appropriate laws such as sales tax, workers compensation, etc. (See this pdf available from this web site for information on FICA:
https://www.ssa.gov/thirdparty/materials/pdfs/educators/What-is-FICA-Infographic-EN-05-10297.pdf NOTE: You will need to download the pdf file from your browser)
Implications of the Affordable Care Acts for the undertaking should be explored. (See the IRS ACA website for more information on the Affordable Care Act.)
Remember to think about laws affecting not only your employees but also your customers. This means that laws like the American Disabilities Act apply and discrimination laws at the local and state level should also be carefully considered.
If this is somewhat mind boggling, it can be. There is no substitute for a good business consultant in the area of the social enterprise like a retail consultant or restaurant consultant. This business consultant should be paired with an astute business attorney.
Final Thoughts
Listen to Jerr Boschee talk about Social Enterprise. May be the best commentary video on social entrepreneurism.
Now that you have learned about social enterprise, although it is hoped you have just had your thoughts bolstered, please do some reflective thinking. Do it not from the perspective of an attorney, but do it from the perspective of a nonprofit professional establishing a social enterprise and especially consider consultation you should make with accountants and attorneys. How will you protect your nonprofit and reduce its risk in the broadest sense as you establish a social enterprise?
