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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

Earned Income for the Nonprofit sector

Sonya Ulibarri // August 10, 2012

earned income
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.

two types of earned income
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.
social enterprise
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

history of social enterprise in the us
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.
top five social enterprises
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
top five missions
Top Five Missions

The top five organizational missions operating social

enterprises in the US are:

  • Workforce Development
  • Housing
  • Community & Economic Development
  • Education
  • Health
revenue indicators
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.
capital for social enterprises
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.

mission income
Mission Income

WHAT IS THE POTENTIAL & THE PRIORITIES OF YOUR SOCIAL ENTERPRISE?

key opportunities benefits
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
key challenges
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.

group identified challenges
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”
steps to launching a social enterprise
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
business impact plan
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
questions to ask
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?
resources
Resources

Social Enterprise Alliance

www.se-alliance.org