The financial viability is of an important consideration, since without funding, the social enterprise won’t be able to produce the desired outcome. As we have already discussed, profitability is not the goal of the social enterprise, but is a necessary condition for its sustainability on the market, so the company should be aiming at both: better financial outcome, and more social impact. Since the social enterprise is not a charitable organization, it should do its best to provide for its needs and to cover its costs of operations though production and sale of goods and services. Very often however, in order to reach the target audience and have more social impact, the SE needs to price its products/services very cheaply and even distribute them for free to those who won’t be able to acquire them otherwise. This obviously will jeopardize the company’s financial stability in a long run. That is why the success of the social enterprise depends to a great extent on the resourcefulness of the management to find funding and to ensure that the company will be able to continue its operation and to create the impact it is destined to.
When searching for additional funding, the social company may consider one (or several) of the following sources:
Government structures (Ministries, Agencies, Committees etc.) provide funds for research and development in specific subject areas and funding for new ventures. Research funds ususally benefits universities and research institutions but the social enterprises could also profit from them in collaboration with a bigger educataional organziation for joint projects.
Government agencies may also provide start-up funds and other resources to encourage new ventures, whether commercial or social or both. The focus here is usually on the innovations or regional development.
It is possible to receive funding even from foreign governments through their international aid agen¬cies. Some countries have special agencies specialized at international develop¬ment. A few examples include JICA, DANIDA, SIDA, and Norad (agencies in Japan, Denmark, Sweden, and Norway, respectively).
Beyond the resources provided by individual governments in their home countries or abroad, there are international organizations that bring together funds from multiple governments around the world to specific causes. For this reason, they are also often referred to as intergovernmental agencies. The World Bank, UN and EU agencies are among the largest and most well-known exam¬ples. While these funding institutions often finance large-scale private-sector enterprises, they increasingly are supporting initiatives to foster social entrepre¬neurship in emerging markets all over the world. International cooperation often involves partnering with local actors such as social entrepreneurs (Chahine, 2016).
NGOs include any private association organized by individuals who have a common purpose. NGOs can either implement their own programs, products, and services or they can provide funding to other organizations (including SEs) to help fulfill their mission.
Foundation a nonprofit organization (type of NGO) which is formed for the purpose of funding and sup¬porting other organizations/ individuals. Foundations usually focuses on philanthropy, the practice of promoting and supporting social welfare. Some foundations are formed by rich and generous people such as Rockefeller, Gates, Clinton etc., others have branched from big corporations as part of their CSR policy such as Pepsi, Starbucks, Nike, Shell, and Unilever Foundations.
Investment funds can be private or public, profit driven, or nonprofit. Investment funds are made of individuals, organizations or banking institutions. Venture capital firms are also a sort of investment funds that provide funding for potentially successful start-ups.
Individuals could be a source of funding that is especially important for the early stage of development or the startup of the social enterprise. These includes:
This is a valuable source for both financial and non-financial support. Many successful for-profit companies are willing to partner with social enterprises in order to increase their social impact and to gain better image or other promotional and marketing benefits or as part of their Corporate Social Responsibility.
This is a sum of money, given by an individual or organization to support a cause. They could be small or large, one-time or on repeated bases. Usually they are given to non-profit organisations, initiatives, programmes, services etc. In return of the donations the benefactors don’t expect financial return, but for a social impact.
Grants are given to the social enterprise for the purpose of achieving a specific aim. They are usually distributed by foundations, other NGOs, governmental bodies, international organizations and agencies. In most cases grants are associated with application procedures where several candidates are competing. Pro and cons of the grants are numerous. Very often they require a burdensome reporting process. Filling in papers might take more time than doing the work itself. Apart from financial support, the grants might come in form of technical assistance, expertise, training etc. which could give additional advantages for the social entrepreneurs.
Usually awards carry fewer restrictions than grants but they are received after competing with others or because of some exceptional performance or results. Example of awards in the social business is King Abdallah award for youth innovation and achievement. The award also is a form of achievement and recognition and distinguish the work of the entrepreneur thus adding to the image of the company and presenting opportunities for more positive outcomes.
A loan is a sum of money that is given to an individual or organization and must be return in the future. It is also referred to as a debt or a credit. Loans carry interest in the form of percentage over the capital. The loan has the advantage of being a commonly affordable source of funding, especially in emergency situations. It also gives freedom of disposing with the money at your discretion, without the need to report to an institution (as with the case of the grants or donations)
Some social ventures are owned by a number of shareholders, who also provide the capital (or the initial funding) of the enterprise. In this case, the financing is ensured through equities (or shares) that could be sold, transferred or exchange on the stock-market. The shareholder has a portion of the enterprise. He/she bears the risks and profits from the growth of the company.
This is a modern form of investment which became popular with the growth of the web-based social companies such as kiva.org. Due to crowdfunding even small-scale individuals could become social investors and lend a sum of money for a socially important cause or venture. Other crowd investing platforms include vested.org, startsomegood.com, fundly.com, Indiego.com, Rockethub.com, Pozible.com, Razaoo.com etc.
These are type of investors who demand both social and financial return on their investment. Acument Fund and Echoing Green for example are non-profit organizations that reinvest the financial returns into other organizations and expand their impact while keeping financial viability and achieving profit for their donors. Social responsible investors focus on financial gain, but are concerned with the social policy of the company they support. They want to make sure that their investments go into socially and environmentally responsible enterprises, that this companies have policies and practices consistent with their values and have a positive impact on the environment and the society.
Business is associated with a variety of risks. Business risk is defined as the likelihood of adverse changes in the market and economic conditions in which the entity operates.
These changes directly or indirectly affect the main economic indicators of the enterprise such as sales, revenue, business efficiency, financial result, cash flow, return on equity, economic added value, etc.
Duration: 2-3 hours
Description of the activity: The trainees are grouped at random. The optimal group size is between 3 and 5 people. Each group receives a blank paper (size A3) and colored markets.
Every group should pick a general theme (e.g. children, democracy, education, environment, migration, poverty, etc.) and focus on a specific problem. The project proposal should include identified needs, analysis of the environment, specific issues to be solved, long-term and short- term goals, target groups, activities, team, monitoring and evaluation plan.
The trainees should write or draw on the blank paper their proposal to present them at the end of the group work activity. They can use a set of questions to structure their ideas:
After work is complete, every group should present their project proposal in front of the whole class. They should be brief but consistent. The time for presenting the proposal should not exceed 5-7 minutes. Comments and questions from other trainees and the lecturer are welcome to facilitate discussion and feedback on the work being done.
Credit: Nevena Dobreva, PhD.
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