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Business skills and balance needed to run a social enterprise

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Income is not profit, so given that a social enterprise is generally licensed as a not-for-profit, it is clear that, in such cases, income and expenditure should match yuan for yuan, or dollar for dollar, in fulfilling the stated social objective. In theory, total income and outgoings just need to balance at the end of the day – or year – with the real focus on what has been achieved in helping people or protecting the environment.

In reality, though, all sorts of practicalities and tactical considerations enter the equation and must be dealt with in concrete ways. Running a social enterprise is not just about raising money to help others. It also involves making financial, management and HR decisions – and getting them right. For example, should an individual employee be expected to pay for dinner, drinks, or a taxi when meeting someone outside the office – or are those expenses borne by the organisation? The policy has to be clear, agreed and consistent. Everyone needs to know which costs are part of operating the business and where the line should be drawn to ensure the maximum still goes to the intended cause or recipients.

[Running a social enterprise] also involves making financial, management and HR decisions

Generally, transport to a meeting during office hours is clearly a cost to be paid by the organisation. But what if there is also a meal? If seeking support for the social enterprise from an investment banker, is it justifiable to book a table and pick up the tab at a five-star hotel restaurant? Would a potential donor be unwilling to eat somewhere more modest? 

Therein lies the problem –and the need for a strategic business decision. A five-star meal may pay off many times over in the long run, but such habits could also easily lead to less complimentary talk of wasted money and mistaken priorities. 

The right balance has to be struck to court donors, retain talent, and effectively accomplish the stated goals of the social enterprise. Doing that requires business skills, not just a social conscience.

Dr Terrill L. Frantz

Assistant Professor of Management and Director of Global Development, Peking University

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