Way too many social enterprises are way too undercapitalized. They don’t have the cash on hand to make rational spending decisions on staffing, inventory, professional expertise, marketing, and so on, to grow their venture. Their tendency is not only to go cheap, but to go without for things they desperately need to turn their social enterprise idea into successful reality.
This is not unique to the social enterprise world. Many failures in the business world come as a result of cash flow problems. Numerous companies go under because they run out of money, even while they’re profitable on paper. They can’t pay their bills, so their suppliers or creditors or staff walk out on them, and it’s all over.
And I would say that most social enterprises are cash poor, running on fumes, never realizing their full potential due to insufficient cash flow.
What to do about it? Well, to come back to an important point, write a solid business plan. Or update the one you’ve got. Carefully prepare monthly cash flow projections for at least your first full year in business. Track payables (when you have to pay for stuff) and receivables (when you get paid). Most likely there’ll be some months when you won’t have enough cash to pay your bills. Develop strategies such as a line of credit or an angel investor to get over those bumps in the road. And keep your fixed costs as low as possible.
Starting and operating a social enterprise is difficult enough. Don’t start your venture until you’re confident you won’t be running on empty. In cars and in business, you need gas or you won’t go anywhere.
Rolfe Larson provides consulting and training in areas such as strategic planning, market research, feasibility analysis, business planning, marketing and implementation strategies.
One agrees with your observations about the difficulties and manner in which social enterprises are run. However, the underlying distinction made between social and business enterprise is thin. All business have to serve some social need to be able to last. One would be inclined to believe that there is a direct relationship between business of a business enterprise and social needs. So long as deliverables of business remain socially relevent, business survives and sustain. The entire gamut of eco-friendly products and technologies are a case in point. Eco-friendly products and technologies are socially relevent internationally; Hence they have a ready audience always. But a great many of these technologies have not matured to fully developed products. Therefore, they are not being mass produced and marketed. When they are ready for mass production, the enterprise managing that ought to have a certain social objectives without which mass marketing and resultant advantages of economies of scale cannot be had. In planning the business if social utility of the enterprise is ignored, all kinds of problems creep in including the problem of demand generation and cash flow. Modern technology is mostly oriented for mass production and distribution
…hence when they are mixed up with niche marketing techniques involving skimming price policies etc, the technology as also the enterprise fails. Churning in leading economies of world is rooted in issues like this. If entrepreneurs of leading economies become more and forthcoming to cater to needs of Asia, Africa and Latin America, it is difficult to concieve of recession in developed economies but this presupposes empowering theses regions.