The following was written as a response to a question posted to an Ask the Expert column on the Greater Chicago Nonprofit Gateway website of North Park Unversity.

QUESTION:  I keep hearing about social enterprises and earned income as a way for nonprofits to raise more money.  Can you tell me more about what this involves and how to get started?

ANSWER:  The Social Enterprise Alliance defines these terms as follows:

Social Enterprise:  Any earned-income business or strategy undertaken by a nonprofit for the purpose of generating revenue in support of the nonprofit’s social mission.

Earned Income:  Payments received in direct exchange for a product, service or privilege.

There are a number of reasons why pursuing earned income ventures makes sense in today’s nonprofit environment. 

 ◘Nonprofits are facing increasing competition for decreasing grant resources and donations.  In 2000, there were 9,767 nonprofits in Illinois reporting to the IRS, including 6,472 in the Chicago metropolitan area alone. 

 ◘Federal and state budgets have been operating at a deficit for several years, resulting in significant cuts in grants to nonprofits, with even more cuts expected in the future. 

 ◘Foundations and corporations have also seen reductions in the monies they have available, resulting in smaller grants to fewer agencies. 

 ◘Grants usually impose restrictions on how the money is used, making it difficult for nonprofits to creatively meet their mission. 

 ◘Earned income ventures can provide mission-related benefits, such as flexibility in program design and implementation, job training and educating the public about their work.

 ◘ Earned income ventures can improve an organization’s visibility and name recognition, making it more competitive in attracting grants and donations.

There are many types of earned income ventures.  The following are some of the most common.

 ◘Fees for service (e.g. counseling, consulting, government contracts)

◘Tuition for training

◘Leasing space

◘Membership dues

◘Cause-related marketing (e.g. licensing, sponsorship)

◘Manufacturing and sellingproducts

◘Buying a franchise

◘Buying an existing business

◘Starting a business

The first step in exploring earned income ventures is to become familiar with the pros and cons, so you know both the advantages and risks.  One good article appeared in The Nonprofit Quarterly’s Fall 2002 issue (Volume 9, Issue 3), Nonprofit Enterprise: Right for You?  A more recent article appeared in the January 24, 2005 issue of The Nation, Profits for Justice.  A controversial article with a more cynical view appeared in the February 2005 issue of the Harvard Business Review, Should Nonprofits Seek Profits?

If you’re still interested after considering the benefits and risks, you can begin the following process.  At any point in the process, you may find that you need to do other types of organizational capacity building before you are ready to proceed to the next step.

◘Conduct an organizational readiness assessment. 

◘Assessment of earned income venture options

◘Preliminary feasibility analysis

◘Preparation of business plan and pro formas

◘Identification of funding sources (for assessment and implementation)

◘Secure funding

◘Establish appropriate structure

◘Recruit additional staff, if needed

◘Implement business plan

There are a number of books and web based tools that can guide you through various stages of the process.  Venture Forth! By Rolfe Larson is a good book to guide you.  The Social Enterprise Alliance website includes a good resource section.  Go to www.se-alliance.org/resources.cfm.  Consultants can also help walk you through the process.   

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