social delta

Consulting and support for social enterprise in Canada

Tag: policy

Is what I’m doing actually a social enterprise?

In the last decade, many more people working to create social change in Canada have been calling themselves social entrepreneurs. The phrase is no longer a mystery for most, as programs in social enterprise spring up at universities and colleges, social innovation incubation spaces proliferate across the country, and young leaders are increasingly looking to create meaningful work for themselves.

However, not all efforts to improve the human condition are social enterprises. Literally, an enterprise can be defined as any “project or undertaking, typically one that is difficult or requires effort” (as in the enterprise of training for a marathon). A social enterprise, under this definition, could be construed as involving any effort that has a social purpose. But, in fact, a social enterprise is not simply any social movement or activity.

There are a multitude of definitions of the term “social enterprise” in countries and markets across the world. All of them include the principle that an enterprise is a business that, at the very least, includes a transaction of value in which a customer pays cash for a good or service in a marketplace.

And then there’s the matter of social value. Here’s the thing: if you are creating social value but not selling anything, you are effectively operating a charity.

If you are creating limited social value (or social value as a happy by-product) through the sale of your product or service, you are a business – a regular, traditional business.

But, if you are in business primarily to create social value through the sale of a good or service, then—and only then—are you a social enterprise.

To be clear, there is nothing wrong with being a charity or a business. However, it is the direct, concerted effort to use a financial transaction to maximize social improvement that characterizes and differentiates a social enterprise.

Improving livelihoods, communities, culture and well-being is not only the responsibility of one type of actor. Governments, non-profits and charities, co-operatives, businesses and the informal sector (families, clubs, collectives, collaboratives, etc.) can all contribute to making our world a better place. One actor is not implicitly better or worse than another at making that contribution; how they operate dictates how much of a contribution they make.

However, social enterprise is a way of conducting business in which creating social value is a primary goal. It is a tool for social change that can pay for itself through earned revenues. This sustaining revenue offers an alternative to charity, voluntarism or tax-funded activities. It is a unique mechanism for which it is expected that the revenue-generating operations will always be seeking to improve the world around us.

To be clear, in Canada today there is very little benefit to calling yourself a social enterprise. There is no tax relief, no designated employment programs and limited start-up capital. Even grant opportunities are far more related to the form of incorporation and the prescribed outcomes than to the label “social enterprise.”  In fact, there is no way to legally define an entity as a social enterprise in Canada.

Nonetheless – and perhaps as a result— many people are calling their project, program, or idea a social enterprise, which is actually making the term increasingly meaningless for policy makers, funders, employees, or even the purchasing public.

So, if you still want to call your work a social enterprise (in spite of lack of clear benefits currently) ask yourself the following four questions:

  1. Are you selling something?
  2. Is the sale of that good or service directly helping you to address a social problem or gap in our society?
  3. Do you have a systematic tool in place to quantify how your sales are directly reducing that social problem?
  4. Do you have a strategy to grow your business, and thus increase your (positive) social impact over time?

If you answered yes to all these questions, then you are a social enterprise. If you didn’t, then you may be doing fantastic work or providing a service that can prove both important and beneficial, but you are not a social enterprise.

This article was co-written by Jonathan Wade and Elisa Birnbaum.

Jonathan Wade is the principal at Social Delta and Elisa Birnbaum is writer and publisher who has recorded the advancement and achievements of social entrepreneurs in Canada both online (at SEE Change Magazine) and in print (her first book, In the Business of Change, will be published in May)

Join the Social Enterprise Council of Canada

As of April 2015, the Social Enterprise Council of Canada (SECC) has opened up its membership to social enterprises and any and all who support social enterprise across the country.  By working together, we all have a greater voice to promote change. Become a member now and raise your voice to support the sector.

The SECC is the only national organization that works to promote social enterprise policy and best practice. Based upon the following six pillars required to support the sector, the SECC has for almost a decade worked with governments, social enterprise supports, community partners, funders and financiers to help build a positive environment for social enterprise to start and flourish in Canada.  These pillars have been used by public policy makers in BC, Nova Scotia,  Ontario,  Manitoba and in federal government departments.

The Six Pillars:

  1. Enhance Business Skills
  2. Ensure Access To Capital
  3. Create Market Opportunities
  4. Recognize Impact
  5. Provide Supportive Legislation And Regulations
  6. Connect practitioners in a strong national network

Annual memberships are inexpensive, and with greater membership, the Council has greater voice in representing those who are using business tools and earned income to create  more just, sustainable, resilient and robust communities across the country.

Join today at www.secouncil.ca.  Become part of the conversation that will chart the future of social enterprise in Canada.

Members are eligible to stand for and vote for SECC Directors–who are unpaid for their work to build the sector– and all members are invited to participate in the discussion on how best to support  social enterprises in the country.

One of the key public activities of the SECC is to work with a local partner to present a national conference every 18 months to showcase success, share best practices, build capacity and develop policy recommendations. Past conferences have been held in Vancouver, Toronto, Halifax, Calgary, and most recently in London (Ontario). The next national conference is planned for the Fall of 2016.

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Can Non Profits intentionally make profits?

Non profit organizations do not have the benefit of issuing tax receipts for donations, unless they are registered charities. This means that non profits running a social enterprise are at a significant disadvantage if they are trying to access funding from donors, philanthropists, foundations and many government programs. For many (non-charity) NPO’s, earned revenue is almost a necessity in order to fund their social, cultural, environmental or recreational programs.

The question is  whether a non profit organization can run their business so as to intentionally make a profit?

The answer up until now has been a resounding no. Many non profits believe that so long as they re-invest any profits (that is to say the excess of revenue over expenses) in the social mission, then they are OK. However, the CRA does not believe that this so-called “destination of profits test” is a sufficient argument. Indeed, the Canada Revenue Agency in their February 2014 Non-Profit Organization Risk Identification Project Report states: “It is the CRA’s position that a NPO can earn profits, but the profits should be incidental and arise from activities that are undertaken to meet the organization’s non-profit objectives. The earning of profit cannot be or become a purpose of the organization, even if the profit is earned to fund non-profit objectives.”

To paraphrase: if a non profit organization intentionally makes a profit year over year, even if that profit is reinvested in the organization’s mission,  they run the risk of losing their tax exemption.

Social Delta recommends the research work of the BC Centre for Social Enterprise, as they’ve written several position papers on this policy issue and others relevant to social enterprise operations run by non profits.

 

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