With over 170,000 NPOs in South Africa and 68 new registrations happening week on week, donor funding is inevitably becoming more and more competitive.
For many organisations looking to scale operations, self-generated income is seen as an important piece of the puzzle - a way to increase their overall income, as well as leveraging match funding. In fact, according to a recent Trialogue survey in 2015, self-generated income accounted for the highest income growth for NPOs.
Meanwhile, NPOs are also recognising the benefits of taking back control, rather than being tied to donor demands. We can become so distracted by changing what we do to fit specific funding categories, that it can cause ‘mission drift’. More importantly, it could encourage short-term thinking (i.e. many grants are for one-year projects) rather than using our time to think ahead and create lasting impact.
Introducing Social Enterprise
Put simply, social enterprises are organisations working for social purpose that get part or all of their income from trading. They’re often referred to as “more than profit” because they do seek to make profit, and use it to sustain the enterprise and achieve its social aims.
Across South Africa, there are amazing examples of social enterprises making a difference in our communities:
- Deaf Hands @ Work | www.deafhands.co.za
- Clothing Bank | www.theclothingbank.org.za
- Beyond the Lemonade Stand | www.beyondthelemonadestand.weebly.com
Of course, no-one transitions to a social enterprise overnight. And many organisations choose to still receive grants and funding in addition to their income generation activities. What we also see, however, is that there are often income generation opportunities where these may not be immediately apparent.
Take Hillcrest AIDS Centre Trust(HACT) in Durban. A multifaceted HIV/AIDS project that serves all those impacted by HIV/AIDS, through home-based care, testing services, HIV education, respite unit, granny support schemes, feeding schemes, etc. In 2015 they generated R4.5m of their own income, 36% of total income. They do this through their plant nursery, second-hand stores and Woza Moya craft store. All of these activities also increase the social impact HACT has.
But as with all big decisions, a move to a more social enterprising model needs to be explored and reflected on before making the commitment. Here are a few things to get that thinking started:
1. Be Realistic
Transitioning towards a social enterprise model may not be for everyone. There will still be some NPOs where the most appropriate method of funding remains traditional grants and donations. The great news for our sector and country is that, if we can enable and support the NPOs who can generate income to transition, we leave funds available through grants and donations for those who can’t. We’ll ultimately be creating more social value either way.
2. Be Aware of the Legalities
A lot of NPOs are concerned that they will lose their PBO status if they begin to trade and make profit. However, SARS changed the rules in 2006 and, as such, this is an outdated misconception.
There are only four conditions where a social enterprise can lose its PBO and S18A accreditation:
- The enterprise is no longer philanthropic
- Its primary activities are no longer for public benefit
- The business activities are unrelated to the core purpose of the enterprise and start taking over its agenda
- The business activities generate substantial income and start undermining existing taxpaying businesses.
- In cases c and d, there is the option of creating a hybrid model.
3. Be Supported
You don’t have to go it alone. Find opportunities to develop your knowledge and skills with others who are walking or have walked a similar path.
Your journey towards a social enterprise model will be blessed with both new opportunities as well as challenges. With support and help of others in posing the right questions, you are able to challenge your own thinking and assumptions, frame problems differently, and have the space and time to reflect on potential solutions for your organisation.
Take opportunities to connect and learn with others in the sector, in an environment where impactful ideas can be created and brought to life. An Academy programme may be a useful starting point for your learning
What other key things would you say were important to consider? Please share your ideas below...
Find out more about the Social Enterprise Academy's support for NPOs