Social business is not reliant on donations and grants to survive

Social business does not need donationsCharities are reliant on donations and grants to survive, meaning they need to spend a significant amount of time building relationships to obtain their funding.

Unfortunately there is no such thing as a free lunch.

Charities generally have little control over what funding they get and when they get it. Sure if they are running an effective organisation that is meeting its social objectives, they are more likely to attract developmental funders and philanthropists; but the donations are not guaranteed and when the economy is in a downturn or a commercial organisation is not meeting its financial objectives then CSR budgets and donations will be cut, impacting charities revenue streams.

The fourth key principle is that social business is not reliant on donations and grants to survive, paying back any investment made to the business.

Social businesses have full control of their own revenue stream by selling products and services that cover their costs.

There will be times when external investment is required for social business (e.g. a new business or project start-up), which is the same for any commercial business. It is important that these investments are taken as a loan, and not as a donation or in return for equity which will impact the ownership of the business.

The loan should be repaid at market rates, which will provide focus to operate as a commercial business. The loan interest will be covered by the products and services the social business sells.

Typically the turn-around time for gaining funds via a loan will be much quicker to obtain than a donation or grant, allowing the business to address social issues in a much quicker time-frame.

A challenge now is for organisations addressing social issues in South Africa is to remove their reliance on donations and grants to survive (as identified in my recent survey) and start operating as social businesses.


Mike.

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