Finding the True Cost of Training
Let’s start out with a tough truth: foodservice is not going to make your program loads of money. We’re sorry to burst your bubble, but high revenue is not the goal of Catalyst Kitchens programs: quality training and job placement is. This is a tough lesson to learn when adapting a social enterprise into a nonprofit.
Finding the True Cost of Training
Catalyst Kitchens recommends that programs divide expenses between the foodservice costs and training program expenses. Programs can use allocations to unburden the business units from the costs associated with delivering training and support services. This method, called double bottom line accounting, will reveal the actual business profitability.
Take a kitchen that is producing soup for lunch service the next day. An ordinary kitchen environment would require one staff member to create the soup - produce the stock, slice & dice the vegetables, and prepare the spices. In a training kitchen, the same task can involve up to 5 students who are learning each piece of the recipe and the technique behind it, plus a chef trainer instructing the group. The labor, time, and materials are more costly in the training environment.
The Social Enterprise Structure: For-Profit versus Non-Profit
First a quick overview: traditional nonprofits are funded solely based on their own fundraising efforts through a combination of private donors, corporate donors, government supplemental funding, grant writing, and public campaigns. Everything that they do is supported through fundraising, which can create a financial dependency on a nonprofit’s funders and their motives.
Social enterprises are businesses that are fueled by a social mission rather than a traditional business focused on profit generation. Social enterprises can be declared as for-profit companies, such as TOMS or Bombas, two companies that donate a product to underserved communities for every item sold. Social enterprises can also declare as nonprofits, like Catalyst Kitchens programs, that develop a nonprofit/business hybrid funding model.
In the Catalyst Kitchens network, programs operate foodservice businesses that provide real-time training opportunity for culinary students during their time in the program. The revenue earned is used to pay for the cost of the program for students, operational costs, and staff salaries. Any costs not covered through revenue can be supplemented through fundraising, just as a traditional nonprofit can raise money to fund their work.
Confusion among donors and outsiders sets in when a business is introduced through the nonprofit model. The common question is, “if you operate businesses, why do you need to fundraise at all?” The answer lies in the additional costs associated with a training program. Catalyst Kitchens programs require wraparound services like paid contracts with shelters or local housing institution for student housing, case managers providing support, job placement services, life skills training, externship programs with employer partners, added operational costs for extra students, chef trainer salaries, the list goes on. Dividing operational costs from training expenses will help your program find its true cost of training.
How to divide training costs from operational costs
Dividing costs will show your business’s true costs and will help your team evaluate the business’s overall efficiency. A double bottom line model will also expand your fundraising team’s ability to support training costs within the kitchen. Below are a few costs to think about when developing your double bottom line model.
Trainees are learning, and with learning comes mistakes. It is an inevitable cost for training programs and will be a higher cost than a traditional restaurant. We find that at least 5% of overall food cost is attributed to food waste due to training and can be counted as a training cost.
A chef is not only focused on food production; much of their time is spent coaching and guiding students through lessons and new techniques in the kitchen. Observe your kitchen operations to determine an estimate on how much time is spent focused on training and how much is used to benefit business operations. Consider dividing responsibilities among the kitchen staff to direct some positions on student training and others on food production to focus efforts.
More people in the enterprise = more building wear & tear, more janitorial services, and more overall maintenance needs. Keep a running census of staff and students using the building on a regular basis to determine the extra costs associated with the training program. Similarly, there is a higher demand for administrative services with a higher number of trainees. Survey your administrative staff members and how much of their time is spent on training-centered tasks.
Dividing your costs will create a clear picture of your business and training program’s costs and sustainability. This new perspective can inform your business strategy and will boost your fundraising efforts to cover training costs in a comprehensive manner. Social enterprise is a complicated balance between social mission and business needs, this financial model is the first step is clearly defining your program and educating supporters about how their financial contributions are moving students one step closer to graduation.
- Photo credit: Catalyst Kitchens Model Member Liberty's Kitchen
- Member Resource: Social Enterprise Double Bottom Line Accounting: A How-To Guide (member account required)