Early next year, local nonprofit leaders are launching the Social Enterprise Network, a forum to help nonprofits find ways to improve the business side of their moneymaking ventures.
The national Social Enterprise Alliance defines social enterprise as using “market-based strategies to advance a social mission.” It covers a broad spectrum of programs. As I have heard it explained, social enterprise includes everything from Girl Scout cookies to Goodwill Easter Seals thrift stores. It includes Science Museum of Minnesota computer classes and EMERGEVentures‘ job training and staffing services. (For that matter, it includes MinnPost’s ads.)
With the economy, endowments and government budgets in the tank, the Social Enterprise Network seems like a timely idea. The Nonprofit Assistance Fund and MAP for Nonprofits are bringing nonprofits together to strengthen their peer network and learn from each other.
Judy Alnes, MAP’s executive director, said the Network grew out of informal discussions among nonprofit social entrepreneurs who wanted regular conversations “so we can be sharpening our saws at our practice.”
The Network will meet once a month, rotating among nonprofits. It’s geared to help organizations already doing social enterprise rather than helping start-ups. The Network has more than 100 organizations on the initial mailing list.
The first meeting is Jan. 15 12-1:30 p.m. at Goodwill/Easter Seals, 553 Fairview Ave. N., St. Paul. The kick-off topic is the workplace culture nonprofits need to promote entrepreneurship, and the strategies and tactics needed to build that culture. For more, click here.
Pros and cons
I’ve taken an interest in nonprofit social enterprise, and recent posts have included a look at Habitat for Humanity’s ReStore, and the Animal Humane Society’s for-profit airport-based pet boarding service.
The Social Enterprise Alliance said the upside for nonprofit entrepreneurs is that earned-income programs can diversify revenue, reduce grant reliance and generate unrestricted income.
Yet having income-generating programs doesn’t protect nonprofits from down markets. I recently wrote about the Minnesota Conservation Corps, which gets about two-thirds of its revenue from fee-for-service contracts. Government agencies and others pay the Corps to do work such as trail maintenance, wild rice planting or fire fuel reduction. Since government funding is down, future contracts are at risk.
The Social Enterprise Alliance’s website includes a few critiques of social enterprise, including the Seedco Foundation report “The Limits to Social Enterprise.” (PDF)
“First, it is worth recalling that more than half of all small business ventures fail within a few years or never get off the ground at all, and nonprofits are no different — except that the implications of failure can be far greater,” it said.
The taxman cometh
Earned income ventures carry other risks. The more nonprofits try to make money, the more they draw scrutiny from the tax folks.
Last spring I wrote about the White Bear Center for the Arts, which offers art classes for a modest fee. The Minnesota Department of Revenue decided to count those classes as fundraisers, a decision that in a roundabout way triggered a sales tax bill.
The classes themselves are tax exempt, but counting the art classes as fundraisers meant the center had to pay back sales tax for artwork sold as part of an annual fundraiser. The gist is that nonprofits only get to have so many fundraisers a year and the art classes put the center over its limit. (Hey, it’s confusing to me, too. I think it is a goofy interpretation of a fundraiser.) For the original story, click here. Last I called the center, it had appealed Revenue’s decision to the tax court, but it will probably take two years to resolve.
The Under the Rainbow Child Care Center in Red Wing, MIinn., offers another example of a nonprofit clash with the tax code. A year ago, the Minnesota Supreme Court ruled that the center didn’t qualify for a property tax exemption. The center charged fees at or near market rates. Since it didn’t provide “charity,” it didn’t qualify for a property tax break as a “purely public charity.”
The Minnesota Council of Nonprofits is working on a proposed legislative fix. See this story.