Insights & Innovations

Charitable Fundraising is Only Part, of Raising Capital for Charities

The Sector - Frederick Peters - Print colour - by Yvonne Bambrick Apr24_15The Sector Inc., see’s an ever-increasing interest among donors (to nonprofits) and investors (to for-profit social enterprises) for greater accountability for money deployed to be used for social purposes and according to our research this trend is only increasing and will continue to do so for the foreseeable future.

Large amounts of new capital are channeling into the sector as industry leaders have earned significant wealth during their careers and look to give back to society. A new generation of donors and investors expect the accountability and performance excellence they came to expect from their experience in the private sector, where competition was grueling. They want evidence that they’re making a difference.

This generation of catalytic philanthropists and impact investors demand more clarity on the objectives, paths to success, and measures of fulfillment. They know that without clear performance measures organizations usually cannot determine whether they have succeeded or failed. They cannot build effective partnerships, coalitions or eco-systems across sectors, working toward systems-change.

The Sector Inc works with donors, social investors, and implementing organizations to develop initiatives which include a clear definition of what success would look like, a carefully articulated path of how success will be achieved, and a specification of the measures that will be used to measure whether success has, in fact been achieved. To solve challenges so large, we must do whatever is possible to improve the social impacts of the financial and human resources being invested across sectors through common goals, measurement, language-sets, cultures and values…

Why Measure Impact?

Bradford_Turner_0027In the interest of raising capital for socially purposed initiatives, social impact measurement is fast becoming a critical success factor; differentiating between projects that do and do not, receive funding, from both public and private donors and impact investors.

An ever-increasing amount of social purpose organizations (NGO’s, non-profits, charities and social enterprises), funders/investors (both public as private) and multinationals are united by a goal: creating social, including environmental, value.

In order to attain that goal and further magnify it, it is critical to know which approaches are superior and why. This is how social impact measurement comes into the conversation…

Measuring and managing social impact helps an organization involve diverse segments of stakeholders, understand what changes and ultimately, to value what matters. Impact measurement increasingly empowers and organization to be accountable for the changes created by the mission of the organization. Lastly, measuring impact will provide an organization with insights into where and for whom are creating impact and how to maximize this.

The Sector Inc., provides customized solutions for social impact management. Whether led by a public authority, social enterprise, investor/funder, non-profit or corporate, measuring, monitoring and managing social impact, The Sector will enable an organization to make more informed decisions, improve impact and fundamentally enable enhanced accountability to stakeholders.

Corporate Social Reporting and Sustainability in the Modern Business Environment

RemonAs society and businesses become more aware of their impact on people and the environment, organisations have been striving to boost their Corporate Social Reporting (CSR) credentials.

Over the past two decades, we have seen greater emphasis on measurement and reporting, to give tangibility to good intentions. The term ‘Sustainability’ and CSR has become a familiar phrase and an indispensable element of any publicly listed company’s annual report. More organisations, especially in the business services and consumer industry are investing and implementing CSR reporting as part of their reporting framework. Although CSR Reporting can incorporate a wide range of topics, the goal is to demonstrate an organisation’s intention to demonstrate its contribution to human kind and the planet.

But what does sustainability really entail and what does it mean in the context of the modern business environment? If you ask most employees of an organisation to answer that question, you’re most likely to get a vague or ambiguous answer.

In 1987, The Brundtland Commission of the United Nation defined sustainability as, ‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’.

More recently, sustainability’s meaning has evolved to encompass environmental, social and economic demands – known as the “three pillars” or the “triple bottom line” of sustainability. An ideal plan for sustainability would benefit the environment; improve the lives of humans, and make money simultaneously for the organisation, illustrated by the diagram below.

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CSR reporting aims to capture and highlight these three pillars, different from traditional forms of reporting, which are centred on financial and economic results and outcomes. As such, you can define sustainability in the context of the modern business environment as:

“The ability to produce a service or product which can be maintained at a certain rate, whilst avoiding the depletion of natural resources, treating society in an ethical manner and reporting financial statements which reflect a true and accurate view of the organisation”.

As mentioned earlier, the purpose of the CSR report is to demonstrate an organisation’s contribution to society. But more specifically:

• To outline its extended Responsibility to wider society encompassing the environment and its citizens

• To be Accountable for the impact it has on its employees, supply chain, customers and the environment

• To demonstrate Transparency, with a clear Sustainability Policy

• To Communicate to stakeholders; Employees, Suppliers, Customers and Shareholders said Policies

And as with any respectable report, the attributes remain the same. The CSR report should be:

• Timely and Regular, at least once a year in line with the company’s Annual report

• Relevant, underpinning the company’s existing CSR policies keeping with the sector

• Accurate, using actual quantifiable metrics, which can be evidenced as oppose to generic statements

Unfortunately, not all organisations are geared up to develop a strong sustainability policy and CSR reporting framework.
Organisations should seek to bolster their CSR capabilities by up-skilling existing resources and recruiting subject matter exports to enable correct adoption. Alternatively, organisations could partner with the right sustainability Partner to enhance the organisation’s sustainability offering, such as an NGO or sustainability consultancy such as The Sector Inc.

The dilemma faced by organisations is how to strike a balance between generating profit for shareholders and investors, whilst contributing to the well-being of society in the form of job creation, fair treatment of employees’ and avoidance of aggressive tax avoidance schemes. However, the benefits of adopting good CSR standards and policy include; greater regulatory compliance, competitive differentiation and management of shareholder and consumer expectation. Overtime, this leads to enhanced trust, increased loyalty and therefore stronger bottom line.

Characteristics of Successful Social Entrepreneurs – Passion.

Passion for the Business!

EX3_0752The first and foremost characteristic shared by successful social entrepreneurs is a passion for their business, whether it is in the case of a new firm or an existing business. This passion typically stems from the social entrepreneur’s belief that the business will positively influence people’s lives.

Consider is the case with Aquaflow, a company that transforms algae grown on sewage into a substitute for crude oil. It’s founder, Nick Gerritsen, intends to influence governmental urgency on climate change. Making a difference in people’s lives is also the primary motivator behind many social enterprises, which are often started by people who set aside promising careers to pursue a social goal.

This was also the case with John Wood, the founder of Room to Read, the author of Leaving Microsoft to Change the World. Wood’s intense passion to serve children in developing economies compelled him to cash in small amounts of Microsoft stock to buy books and build schools, even before exiting the company.

Wood finally left Microsoft to lead Room to Read full-time. As of May 2011, Room to Read had built over 1,440 schools and distributed over 9.4 million books in developing parts of the world.

Passion is critically important for both for-profit and not-for-profit entrepreneurial organizations because, while rewarding, the process of starting a firm or building a social enterprise is grueling and demanding.

There are five primary reasons passion is important. Each of these reasons reflects a personal attribute that passion engenders. Removing just one of these qualities would make it much more difficult to launch and sustain a successful entrepreneurial organization.

See Adam Slack for:

FIVE PRIMARY REASONS PASSION IS IMPORTANT FOR THE LAUNCH OF A SUCCESSFUL ENTREPRENEURIAL ORGANIZATION

Barringer, Bruce. Entrepreneurship, 4th Edition. Pearson Higher Education (UK), 2013-05-20. VitalBook file.

The Sector Inc., 2017

 

Porter’s 5 Forces to Assess Ability to Achieve Social Impact in an Eco-System

Bradford_Turner_0031The Sector utilizes Porter’s 5 Forces framework to assess socially-minded organization’s market positions and to forecast future positions, within their stakeholder environment, when strategic planning….We adopt analytical tools typically for profit-driven businesses as a way to analyze competition and implement strategy for not-for-profit’s, social enterprise, hybrid’s, and corporate social strategies.

A prudently assessed and factual understanding of an organizations influence in it’s eco-system pursuant to the following 5 forces is key for sound strategy development….

Bargaining Power of Service Providers (Suppliers): How much influence do sub-contractors or partners providing services have on a charity? Providers gain power as their services become central to the mission and vision of the organization.

Bargaining Power of Grantmakers (Buyers): Grantmakers are essentially “purchasing” the social impact provided by the organization. If they can “get” a similar or superior product from another organization, they will “buy” their mission/vision instead.

Competitive Rivalry: There are an estimated 86,000 nonprofit organizations in Canada. It is important for public sector leadership to understand the gaps or competition in the market.

Threat of Substitution: How likely will a grantmaker or community or company switch to a competitor? If switching costs are low and similar organizations exist, there may be a serious threat of substitution.

Threat of New Entrants: With high donor loyalty or high fixed costs, the threat of new entrants can be limited. However, if the demand for a particular service is high and fixed costs are low, new organizations or programs may enter the market.

Collective Impact Peers Share Their Experience

The Sector Inc., is very proud of Tamarack Institute and excited to see the pan-Canadian knowledge-base and practice of Collective Impact grow, grow, and grow, toward healthier and more robust communities, for an ever growing number of people.

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As a Learning Institute, Tamarack is committed to making the work of community CHANGE easier and more effective. They do this by teaching, writing and both hosting face-to-face and online learning opportunities to provide leaders with the knowledge and inspiration they need for success in their community change efforts.  In 2016 Tamarack were proud to welcome more than 22,000 learners to engage. We applaud this work!

The Sector Inc., Key Note Address at the Canadian Water Quality Association

The Sector Inc., Principal, Dr. Frederick Peters and Alfredo E. Landaeta at the Kitchener AGM of the Canadian Water Quality Association, where the team delivered the key note address of the day. Many thanks to the organizers, Kevin and Aysha Muzaffar, and to the membership for their questions and enthusiasm about the presentation.

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To support and grow the health, sustainability and credibility of the water quality industry in Canada:

  1. To train, educate and certify water quality professionals
  2. To serve as a unified and credible voice to our membership, government and the public
  3. To be the resource for industry information and statistics

 

Bradford Turner, Principal & Co-Founder

While working with NGO Save the Children, non-profit education organisation Junior Achievement Canada, and on various Canadian healthcare infrastructure projects, Bradford had seen how Government departments and broader public sector organizations in Canada – so removed from the ground – had wasted their money on layers of inefficient bureaucracy when delivering social projects.

A niche opening was available for a consultancy that could provide Government departments a strategy to deliver more with less money, or as Bradford puts it “optimizing socioeconomic outcomes in government services by implementing integrated planning and client-focused service delivery models”.

Dr. Frederick Peters, a Research Fellow at Canada’s City Institute at York University, with a PhD in Political Science and a consulting focus on social infrastructure, partnered with Bradford  and a team of professional MBA’s from Warwick Business School, to grow the concept and look into building it into a business, which is now growing, creating systemic change across Canada.

 

 

NonProfit Mergers: Higher Education

Triggers for Merger

Triggers for merger in higher education have increased. Reduction in government funding, reduced student numbers, and a changing market for different styles of courses have raised question marks over increasing numbers of institutions in terms of their viability.

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Universities have generally tried to be all things to all people in offering a wide, balanced range of subjects at a highly specialized level. There is also a strong pecking order among institutions based upon research performance, attractiveness to students, and the ability to earn from industry. Employees are likely to have strongly held views on the institution’s particular balance in these areas, and, as significant stakeholders, will have a strong influence upon the success of merger talks.

 

Ratio Analysis for a Not-for-Profit’s Financial Health

Not-for-profit organizations and social enterprises are realizing the value of financial efficiency measurement as an approach for evaluating operations, programs, services and financial stability. One effective measurement tactic is financial ratio analysis. Extracting data from your financial statements, to calculate ratios specific to your not-for-profit, and then bench-marking those ratios on past performance, management objectives or comparable organizations.

Ratios

Financial ratio analysis assists to assess your not-for-profits overall financial condition and flag financial patterns, both those that might be harmful or successful.

Upon identifying your goals for financial ratio analysis, next step is to quantify your financial information. The following are metrics and ratios not-for-profit organization’s should use and the primary indicators of financial health  from the lens of funders across sectors.

Viability ratio. Compares expendable net assets (including unrestricted and temporarily restricted net assets) to long-term debt: a not-for-profit’s relative liquidity or its ability to cover its debt. This is a basic indicator of financial strength and measures the availability of cash and other liquid assets to meet the non-for-profits financial obligations.

Current ratio. Indicates your organization’s capability to meet short-term financial obligations comparing your current assets to your current liabilities. Ideally, a not-for-profit should have a current ratio of at least 1.0, and preferably greater. A current ratio under 2.0 could indicate an inability to pay current financial obligations with a measure of safety.

Quick Ratio. Banks utilize the quick ratio comparison to gauge financial stability. It compares quick assets (current assets less inventory and prepaid expenses) to current liabilities. An organization’s quick ratio should not be less than 1.0.

Operating reserve. Addresses the question of whether resources are sufficient and flexible to support your mission so to avoid having to borrow externally. It compares expendable net assets to total expenses. It describes your organization’s ability to fund programs and other expenses from expendable net assets, should no additional operating revenue be available. Not-for-profit organizations should aim to have an operating reserve ratio of no less than 25 percent, or enough to cover at least three months of their annual expenses.

Change in net assets. Measures financial performance by addressing: “Did your not-for-profit live within its means during the year?” While an organization’s success isn’t completely assessed by whether it had a positive or negative change in net assets, consecutive deficits are cause for concern.

Operating margin. An important forecasting ratio because it illustrates organizational ability to produce a potential surplus, which could be available if needed in future years. This ratio is determined by subtracting expenditures from revenues and dividing that sum by your revenues.

Program efficiency. Compares total program expenses to total expenses. This information helps to demonstrate to potential funders how efficient your organization is in fulfilling its mission.

Operating reliance. Illustrates that your not-for-profit is able to pay for total expenses solely from program revenues, divide program revenues by total expenses.

Fundraising efficiency. Always be aware of what you’re generating from fundraising activities! This ratio identifies the amount of contributions that result from fundraising expenses by dividing the former by the latter.