Everyone in the social services industry has been worrying and wringing hands over the talk and actions of slashed budgets and reduced government spending. There have been demonstrations from agency workers, consumers and their families against cuts to entitlement programs in nearly every state. Tax revenues are down over the past 2 years and, at a minimum, 42 states have made cuts to programs that have already harmed our more vulnerable populations.
Many nonprofit and human services agencies are only now starting to react to these budgetary pressures. For some, it may be too late. There have been and will continue to be program cutbacks, mergers, and closures throughout the country.
Necessity has been mothering some inventive thought in the social services world for a few organizations. Many are starting to implement or expand plans and actions to increase funding diversity.
For some, it’s been a matter of starting donation activities. Others are stepping up their donation work using more calls-to-action with fundraising events, phone calls, newsletters and email blasts. Still others – those running vocational training and supported or sheltered employment programs – are looking into another diversification strategy (or increasing existing operations) to help ensure they are sustainable for the rest of the year and beyond.
There are many social agencies that have been utilizing an affirmative industry model for decades now. But this for-profit business strategy is new to many who might never considered the option. An affirmative industry business, or social enterprise as many are calling it today, could be great strategy for ensuring financial diversity. It is not some panacea for every agency across the country but for many human services work training facilities that currently provide client employment or community placement it’s not a giant leap away from their missions.
What is Social Enterprise?
Any for-profit or non-profit agency that forms a business designed to generate income for an ultimate philanthropic goal would be considered a social enterprise. And the affirmative industry model is where a vocational or day program agency would create a business that is a blend of their sheltered employment program and their community work program with a for-profit business. This would allow for the workers with disabilities to work alongside workers with no disabilities. The goal of the social enterprise is generate revenue to help the nonprofit agency that acts as the parent organization.
What has worked for many vocational rehabilitation agencies is they create this separate corporation that is responsible for the capital investment and ongoing operations of the business. It becomes a hybrid of a non-profit agency and a for-profit company to achieve social and business goals at the same time.
501(c)(3) organizations are legally allowed to do this as long as they do not raise funds through investors/investments, offer shares or profit participation, and the main activities are geared toward their social mission and not business. Otherwise, there can be tax-exempt status implications. Keep in mind, this is not legal advice, in any way, so you’ll certainly want to talk to a legal and/or tax professional to understand everything involved.
Advantages of a Social Enterprise for a Social Service Agency
The “sheltered workshop” model has been around for a very long time in this country and many have a problem this structure. Still, not every worker with disabilities is ready to move into a community job. An affirmative industry model is a step up from the sheltered employment position and can create more opportunities for a better salary and more social interaction experience.
There is a greater chance to create or develop job options that are of more interest to the clients. And the social enterprise may create more jobs in an economically depressed or rural location. It can help those who require more intensive supports still be able to find and stay with a job. And because the agency is in charge, they have ways to be more creative with job design and business outcomes to find work for nearly everyone.
Creating a new company is a daunting task, however, and one that many nonprofit social services leaders are not ready or prepared for. It involves a lot of time, energy, and funding to tackle the business and legal requirements to start a for-profit business. Many leaders of these agencies have no experience in running a business. So it is not for everyone. But it doesn’t mean that it is too hard or too expensive or will take up too much time. It is an option and it has worked in the past to create more diversified and steady funding. Our best advice would be to talk to and possibly hire for-profit business experts to help start or even run the business venture.
Just as you have sheltered employment, supported employment with job coaching, and sheltered or supported enclaves, an affirmative industry business will give your agency another option to promote the chance for sustainability.
There’s a possibility that if you’re successful, you’ll also be enriching the lives of your participants. You’ll be giving them a chance at more interesting work. You’ll be allowing them the experience of working in a business-like setting with an integrated workforce. They will have a better opportunity to earn a higher wage. While they probably won’t earn as much as a job placement in the community, they should end up with a more job stability and still have more supports.
We work with many agencies that have been utilizing social enterprises for a while now with some great success. The recession has not been easy on many due to the losses of contracts but they’ve also noted the budget cuts have had less of an impact on their organizations.
Many executive directors with social enterprise businesses have noted that it was more time-consuming than they thought but they were able to weather financial storms and will continue to be able to do so.
Is a social enterprise business an option for your organization?