Where should non-profits and social enterprises begin when considering their financial options?

First stop is right at home: Is this the right time in the organization’s evolution to be making these considerations at all? It’s worth setting a filter to screen timing on making these considerations at all, and avoid wasting valuable time/energy/resources spinning wheels down the road.

Here are a few suggestions for filter questions: Who is making these considerations? Are they the right person/group to champion this assessment, and do they have the resources to do it properly? Do they have a keen understanding of the organization’s mission, direction & ground level operations? What is the organization’s fitness level in terms of taking on a big new challenge that will affect mission, direction & operations in often unforeseen ways?

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Let's examine the spectrum of organizations in a little more detail:

• Traditional non-profit/charity
• Charity/non-profit with an associated business
• Mission-related business
• Standalone Ventures
• Blended Program and Business Ventures
• Social benefit enterprise
• Social purpose business

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For me, social finance means investment capital for a worthy cause- that will improve the lives of those who need help, and ultimately benefit the communities these folks live in. Unlike private capital, social finance is not an end in and of itself but a means to achieving a social goal.

Social finance is a concept that gets little attention from policy-makers in Canada and this has, in my opinion, stunted its growth and potential. More on this below. So what are the current and most common practices?

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There is an increasing need for the non-profit sector in Canada to seek new innovative ways of accessing capital to meet their goals. But before we go in-depth on the emerging world of social finance, it’s important to explore the different types of financing that exist for an organization.

Financing is the money acquired to run an organization and achieve its mission. All types of organizations must make decisions around financing with respect to their business objectives, ability to secure alternative investment, risk tolerance, and other related factors. Although, financing options vary based on the organization’s legal structure there are typically three types of financing options available to non-profits or social enterprises: Grant Funding, Debt, and Equity.

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Social finance, rather than detracting an organization from their mission, provides the ability for an organization to achieve their mission using a more robust diversity of tools, namely, generate revenue. Too often we assume a broad philosophical gap between for-profit and non-profit organizations. Non-profits are laden with cumbersome attempts at fundraising through donations and grants, which can be said to detract from time spent on their mission, where as generating revenue from any type of activity could provide a steady source of funds.

For-profit organizations and their ability to provide income to investors have been offered numerous financial options and products. Rather than detracting from a for-profit organizations business or product, these options allow for and encourage growth and success. The added advantage that for-profit organizations have is that they can rely on market indicators to let them know if they are failing. The non-profit sector is working on ways to create these feedback mechanisms and social finance can be one way of assisting.

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