At the BC Centre for Social Enterprise, we interface with many community-based organizations seeking to start social enterprises. At our organization’s infancy in 2004, social enterprise was the ‘hammer’ for every ‘nail’ connected to social and environmental inequity. We were so in love with the potential of the social enterprise approach, that we failed to understand its limits. We also failed to recognize that many non-profits and charities are simply not cut out for social enterprise.

One red flag that signals to me that social enterprise is perhaps not the best fit for clients, is when they expect that the enterprise is entitled to be supported entirely by non-repayable grants. My colleague Stacey Crawford undertook some graduate level research that fully shone a spotlight on the tendency for many in the third sector to expect free money for their ventures. In my days as a business counselor for traditional enterprise, this expectation on the part of traditional self-employed folks usually prompted me to suggest that perhaps business wasn’t the best path for them.

You see, complete reliance on grants (for launch and into the foreseeable future) suggests a few likelihoods to me:

1. The organization doesn’t trust its venture concept enough to take the risk involved in making a promise to repay.
2. The organization isn’t intending to run a business that is financially sustainable.
3. The organization expects that the fact that it will be embarking on a venture with a social return, is ‘enough’ for investors.

Don’t get me wrong. Specific social enterprises – training businesses are a fantastic example – are not likely to turn a notable profit. They represent a massive contribution to society, and the economic returns that they produce tend to manifest outside of the social enterprise itself (e.g. lessened reliance of workers on the social safety net, reduced health and corrections costs, new taxpaying citizens, and on it goes). Social enterprises like this, ones that will likely only turn a small profit as a best case scenario, will likely remain dependant, to some degree, on grants-based support.

But those social enterprises that don’t by their very nature host business inefficiencies should of course be moving beyond grants. Ventures that undertake consulting work are a clear example. Their goal is likely to generate profits for the parent agency. As we hear time and time again, ‘it takes money to make money.’

For those that fit into the profit-making category, the key is that the non-profit or charity think like a business.

This means:

1. The organization is selling a good or a service that contains a healthy margin.
2. The good or service is of high quality, and is desired in the marketplace at the price level presented by the organization.
3. The organization has the capacity to effectively market its offerings.
4. The organization trusts its venture concept enough to take the risk involved in making a promise to repay.
5. The organization intends to run a business that is financially sustainable.
6. The organization’s Board and staff have a strong comfort level with the idea of repaying debt, or paying interest to investors. The Board understands its obligations to repay.

Before exploring the opportunities being offered by the growing world of Canadian social finance, my advice is ‘know thyself’. Is your social enterprise one that has the ability to repay? Does it view the world of social finance as a burden… or an opportunity to scale up impacts and profits?