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Nonprofit Social Enterprise Succession

Background

Canadian nonprofits and charities have a long history of running successful social enterprises that meet community needs through the sale of goods and services. The 2016 Canadian National Social Enterprise Sector Report revealed that the 1350 responding social enterprises reported $828 million in sales, for an average of $613,000 per enterprise. They paid $442 million in wages and salaries to 30,800 employees, of whom 76% were mission-focused employees. These social enterprises also trained over 100,000 people, provided services to over 5.48 million individuals, and engaged over 116,000 volunteers.

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Sometimes, social enterprise activity can include taking on the operation of existing small businesses. In the small rural community of Lawrencetown, Nova Scotia, Carleton Road Industries Association (carletonroadindustries.com), a charitable nonprofit, has taken over and successfully operates the village’s only convenience store, gas station, and laundromat ‒ even the post office! It’s hard to imagine that small community functioning without that social enterprise. This work is the focus of the British Columbia-based Business Legacies Initiative, whose goals include: to understand the challenges and opportunities for business to community business transition; develop processes, resources and training to assist; and identify initial pilots to support through the process.

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Maybe it’s your nonprofit’s time. Maybe your nonprofit is looking for ways to diversify its revenue streams, or perhaps to provide new training and employment to your members. You’ve got some experience running your own social enterprises, selling goods and services to paying customers, and perhaps now you’re ready to take on a new challenge that will create bigger opportunities for the people you serve. You’ve heard that there’s a local business coming up for sale in the near future, and it would fit really nicely with what you’re looking to do. Maybe, instead of starting a new business, you might buy this one – with all the staff, systems, facilities, suppliers, and (most importantly) paying customers already in place. Getting to that point on your own from scratch could take many years, but buying this business could save a lot of time and improve your chances for success.

Where to Start?

“Pathway to Successful Business Purchase: Adapted Buyer’s Workbook for Non-profit and Charitable Organizations”, published by Scale Collaborative, outlines a comprehensive, step-by-step process for nonprofits and charities looking to explore the potential for acquiring a business: 

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The first phase, Plan Acquisition, includes a number of key considerations that will help nonprofits and charitable organizations to get started on the right foot: 

  1. Understand your motivations 

  2. Clarify your values

  3. Clarify your key roles and responsibilities

  4. Understand your risk tolerance

Each step is presented in more detail below.

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Understand your Motivations

What has brought you to consider acquiring a business? Is it to diversify or expand your operating revenue? Expand or enhance your social impact? Acquiring a local business and running it as a social enterprise can address both of these aspirations in varying degrees. Think of it like the continuum presented below:

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Our Motivation for Acquiring a Business:

  1. Entirely Financial – To grow and/or diversify our operating revenue

  2. Primarily Financial

  3. Financial and Social Impact

  4. Primarily Social

  5. Entirely Social – To enhance or expand the impact we’re making in our community

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Are you a 1, a 5, or something in between? It’s up to you, but you should be clear as you move into this process.

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Clarify Your Values (Beliefs, and Guiding Principles)

Any business you acquire and operate must at least align with and ideally enact your organizational culture, as expressed by your values, beliefs, and guiding principles. This requires that you’re clear about these things in the first instance. Can you clearly articulate what you value as an organization (i.e. your values)? What do you believe to be true about your community and the work you do (your beliefs)? What you seek to embrace and avoid in your work (principles)? The answers to these questions will guide your search and selection of an appropriate business to acquire.

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Clarify Your Roles and Responsibilities

The process of identifying and acquiring a business will involve making many important “go/no-go” decisions, so it will be critical that you have clarity about who makes these decisions and how. The first and most important decision is whether you have the support of your board and staff leadership and, if so, what decision making framework they will require as you through the process.

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Understand Your Risk Tolerance

Risk is a function of the likelihood and consequences of failure, and every organization has a different degree of tolerance for both of these key factors. And, while this will certainly come into play if and when the time comes to actually acquire the business, it actually starts at the very beginning. How much time and resources are you willing to invest in exploring the acquisition of a business (i.e. how much are you willing to lose)? How certain do you need to be that it will lead to something worthwhile? These questions apply especially to your board, as they are ultimately responsible for how organizational resources are invested.

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Resources

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