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Generating income

Monday, March 5th 2012

Silulo social enterprise

How can my organisation generate an income to make it less reliant on grant-funding? Are investors more attracted to organisations that can generate their own income? Are there some organisations that will never be able to generate an income? Do I need enough income to cover all my expenses? GreaterCapital’s Laurie Scholtz examines these questions in the run-up to our second Knowledge Session: From fundraising to income generation.

Income generation is the latest buzz word that is causing more questions than it answers for non-profit organisations.

Income generators and welfare organisations
There are really two types of organisations within the social development realm. Firstly, you get the income generators, otherwise known as social enterprises, where you have entrepreneurial-minded individuals implementing fully-fledged business models that not only produce sustainable financial returns but also provide solutions to pressing social challenges. Secondly, there are welfare organisations that are also providing solutions to these problems but where income generation is not a part of their core business. This makes them dependent on grant funding to a smaller or greater extent.

Meeting the need
A good example of a social enterprise is the Trust for Urban Housing Finance (TUHF). In South Africa, 7 million households earn less than R3,000 in income per month which means that they can afford bond payments on a house worth about R100,000. Today, there are only 1 million houses that fall within this price range, leaving a defecit of 6 million houses. The need for affordable housing is clear.

TUHF developed a model where they equip emerging construction entrepreneurs with the finances (loan funding) and support to buy inner city buildings in need of regeneration. The entrepreneurs then use the finance to fix the buildings which are then sold or rented to low income households. So not only is TUFH helping to bridge the housing deficit and convert inner-city slums into pleasant living environments but they are also a profitable and growing business.

Business models
The awesome thing about a social enterprise with a good business model is that as the business grows, so does its ability to fund new projects and increase its impact. Contrast this to organisations which rely exclusively on grant funding, which – no matter how successful they are – always eventually spend the money that was allocated to them and must spend considerable time and resources trying to find where the next grant will come from. In my mind, this is what has led to some people believing that all money going into the social development space should be put into income generating models in order to grow that pool of money. In an ideal world this would seem like a good idea.

But we don’t live in an ideal world. South Africa has the highest number of people living with HIV and AIDS in the world. The burden of this disease has resulted in many child-headed households and a large number of orphans. The organisations that work on the ground with these children are doing a phenomenal job in caring for them and helping them to live a better life. To expect this type of organisation to start generating its own income does not make sense.

Focus on core business
When it comes to things like HIV and AIDS, caring for the elderly and enhancing education in rural schools there is often no income to be generated. The organisations working in these areas need to focus on their core business and not on setting up a social enterprise. This is why there will always be a place for welfare and grant funding in South Africa. The social impact that grant-dependant organisations make in the communities in which they work is highly valuable and without them the depth and consequences of South Africa’s social problems would be far greater.

So income generation shouldn’t be a debate. Either the social need you are addressing has the ability to generate income or it does not. Although income generation and sustainability are closely linked, sustainability does not equal income generation. There are many ways to make your organisation more sustainable, without necessarily having to generate an income. Growing a diverse pool of donors, setting aside a small portion of all income in a reserve fund and making sure that you have transparent governance structures and a supportive board are just some of the steps that organisations can take to ensuring their sustainability, whether or not they generate an income.

Sharing knowledge
On Friday, 16 of March 2012 GreaterGood SA will be hosting two online knowledge sessions on income generation and sustainability. The first will be aimed at social enterprises and will give an overview of how to go about setting up a social enterprise, finding funding and other critical success factors. The second session will be for those organisations primarily focused on welfare and will look at the possibilities for income generation but will also focus on other areas of sustainability such as financial reserves and programme development.  

These sessions are already full but you can visit The Funding Site for information on future sessions and to download the notes.

Photo: Social enteprise started in the Western Cape, Silulo