Find the Profit in Nonprofit Social Enterprise
Foodservice has razor thin margins; add a training program and those margins become even thinner. The handful of times Catalyst Kitchens has seen programs fail, the primary reason is a lack of long-term business sustainability that also provides a work-based learning environment for job training. Our members often operate more than one food service business to provide a variety of learning environments and ensure they have a healthy mix of self-generated revenue. Too heavy a reliance on any single source of revenue, once lost, can devastate a business and therefore a program. In addition to a lack of diversity in revenue streams, this is often due to lack of alignment around business expectations among key stakeholders.
Fill a conference room with organizational leadership, board members, and donors early on during the design of a new social enterprise and it will be highly unlikely that everyone shares the same expectations for the business. Failure to align expectations early on means you may be faced with questions like “Our catering is through the roof, why do we need to fundraise?” later down the road.
“...the great thing about this model is that you can tap into so many pools of funding.” - Jennifer Gilmore, Kitchens for Good
Clarify whether your stakeholders expect the business to net a profit or whether the goal is to break-even. In either case, be sure to separate training costs out from other business expenses so that you can better understand how the business is performing and how much you’re spending on training. This is important for existing social enterprises in addition to those just getting started.
Paul Fordham, Deputy Executive Director of Homeward Bound of Marin, recounts his experience with the Stanford Alumni Consulting Team some years ago as they considered expansion for their foodservice businesses. “We had them come look at our business and their response was, ‘scale nothing because you don’t understand your costs.’” Taking the time to develop training allocations will help your program to assess enterprise health down the road. Your catering business may never appear to generate a profit if 100% of your kitchen staff's labor cost is deducted as an expense.
Homeward Bound of Marin County's Fresh Starts program that hosts Chef events, manages a catering company, and has retail production for Wagster Treats, Halo Truffles, and Halo homemade, a sister line of jams & salsas.
Diversify your sources of revenue
Once you’re able to understand how much your program spends on job training, you can raise private and public funds to help cover some of those costs. Non-profit social enterprises often suffer from a common misconception that they should be entirely self-sufficient. Help your stakeholders understand that while the business may eventually contribute to program revenue, your program will be stronger and more sustainable if you diversify funding sources by supplementing with private fundraising and public grants.
“Just like a retirement portfolio, your program budget should consist of a diverse mix of funding sources,” says Michelle McDaniel, Chief Development Officer at FareStart. “We call it our ‘three-legged stool of funding’, with a mix of social enterprise revenue, government grants, and private philanthropy.” The average Catalyst Kitchens member has a revenue mix that is 52% private funding, 25% public funding, and 23% social enterprise. Check out this Tableau dashboard that shows 2017 network data around funding sources.
Don’t shy away from fundraising to cover training costs
Jennifer Gilmore, CEO of Kitchens for Good, agrees on the importance of this funding mix and explains “the great thing about this model is that you can tap into so many pools of funding. We’re eligible for funding around health and human services, hunger relief, food waste, economic development, and workforce development.”
Kitchens for Good provides 200,000 nutritional meals to social services agencies annually, has a catering program & events space, and provides contract meals to senior centers & after-school programs.
We recommend keeping the below best practices in mind as you discuss the launch or scale of your social enterprise:
Manage expectations around enterprise profitability with your key stakeholders.
Diversify your sources of revenue both on the business and fundraising side.
Take a double bottom line approach and allocate training costs. This will help you better understand how your business performs and allow you to capture the true cost of your training.
Don’t shy away from fundraising to cover training costs. A diverse revenue mix of public, private, and social enterprise creates stability and space to grow.
Keep these top priorities in mind while considering a business expansion to keep a clear picture of your operational and training expenses. Get your team on the same page and you’ll see the benefits of this system. Social enterprise is a difficult business – these tactics help you simplify and maximize your team’s efforts.
The Catalyst Kitchens Network's Financial Profiles: Social Enterprise, Private Funding, & Public Funding