The level of social enterprise self-sufficiency is based on financial objectives, the type of enterprise, and its maturity. Social enterprise methodology does not dictate breakeven or profit-making; rather, financial performance is appraised by the ability of the social enterprise to achieve the financial objectives it has set.
For this reason, the chart below1 does not represent gradation from one stage of development to the next, unless the social enterprise's express objective is to move across the continuum and performance is a question of maturity.
|Traditional Nonprofit / Social Enterprise
|Full Philanthropic Support
|Cash Flow Self-Sufficiency
|Level of income
|No earned income. Relies on subsidies for financial support to sustain operations.
|Earned income covers a portion of operating expenses or recovers some program costs.
|Earned income covers operating expenses of enterprise at lower than market rates.
|Earned income covers all operating expenses without full market-based costs (capital & investments).
|Earned income covers all operating and investment expenses at market rate.
|Enterprise and/or parent organization mostly subsidized.
|Bridges deficit between earned income and expenses, capital investment and growth subsidy.
|Cost of capital, partial subsidies for loans, and capital expenditures.
|Viability through earned income
|Not viable. Requires continued external financing (grants). Cost recovery is often seen as a side benefit rather than an expectation of the program.
|Not viable. Organization is dependent on grants and donations for survival; may self-fund isolated services or activities.
|Approaching viability. Covers direct costs; cost structure and growth subsidized; revenue covers daily operations until breakeven.
|Viability expected. Operational breakeven; no surplus revenue, subsidies diminish; revenues cover all operating costs.
|Viable to profitable. Revenues cover all operating and financial costs; retained earnings finance growth. Nonprofit may change its legal status to that of a for-profit entity.
|Type of subsidies
- 1Expansion on spectrum idea presented by Gregory Dees, Enterprising Nonprofits, Harvard Business Review, January-February 1998. Adapted from, Alter, Sutia Kim, Managing the Double Bottom Line: A Business Planning Resource Guide for Social Enterprises, Pact Publications, Washington, DC, 2000.