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due diligence

Social Enterprises: Points of failure to protect against

The growing trend in the NGO sector is to develop Social Enterprises as a means of alleviating the load of NGO balance sheets from an ever shrinking government funding pool. However, there are many pitfalls that these businesses get into (not unlike normal businesses) that need to be guarded against.

Before getting into the topic, I would like to mention two rules of thumb. Some ideas work and others don’t – that’s the first one. Knowing something that you shouldn’t do is more worth than knowing what you should do – and that’s the second rule of thumb. The purpose of mentioning these points is actually to relate the concept of successful and failed ideas that arises in every newly born enterprise. Talking specifically about the social enterprises, there arises numerous ideas for the welfare purpose and most of them gets failed due to some technical and managerial reasons (mentioned below), and when ideas gets failed, the purpose of a particular social enterprise gets failed and hence, when purpose gets failed, the enterprise as a whole gets failed.

Remember: Social Enterprises are businesses that provide a social dividend back to the NGO that owns them; often in both 'soft' (business being utilised by clients) and 'hard' (cash) returns.

Faulty Foundations: Get your foundations right before you start. You need to finance yourself, not just your social enterprise. Too many entrepreneurs equate starting a business with getting a job. They take a salary from the business increasing its chance of failure. The business is spending cash it can't afford, reducing the time available to develop a profitable product.

Beware the Love-struck Founder: Love-struck founders need to be balanced out in any social enterprise. Most people that are involved in NGOs are some of the most passionate, amazing people you will meet when it comes to their cause. That is what attracts them to the NGO in question. However, we need to remember that Social Enterprises are still businesses. They still need to make money in the real marketplace and they need to be run as such. Social enterprises will fail the same as normal business without experienced management. 

Due Diligence: If you were going to buy a house, car or business, you would do due diligence on the asset. Before entering into any new social enterprise, you must engage in a quality due diligence process. In order to do this properly, the 'owning' entity needs to enter into an independent due diligence partnership; for this, our Gravis Risk team needs to be engaged.

Cross Subsidisation: There are plenty of NGOs that go into the social enterprise of their choice as a means of ameliorating the pressure on their budget bottom line with the ever present pressures from a shrinking pool of social services funding from the Federal and State Governments. Then, for a variety of reasons they find themselves in a position where they are cross-subsidising the operating budget of the social enterprise instead of the other way around. This is unsustainable and needs rectifying ASAP.

Growth Strategy: Like all things in business, unless you plan to grow, stagnation will follow. The peculiarity of social enterprises are the number of entrepreneurs that pursue ideas that only work at a large scale. This means that social enterprises need to be moving into a scale where they are sustainable. 

For a consultation on your idea for a social enterprise, your social enterprise that is up and running and needs to be taken to the next level or your social enterprise that is 'stuck in the mud' - get in touch with the Gravis Risk team today by clicking here.

Gravis Risk due diligence...

Due diligence is a phrase that has been traditionally used to reflect the analysis activities that occur during merger and acquisition activities. Recently the due diligence process has been extended to include the evaluation of business affiliation and partnership agreements.

Due Diligence is generally comprised of legal due diligence and financial due diligence. At this time, research into financial assets, articles of incorporation, market share, technology, hardware and business competencies are examined and as a result, there is a need for businesses to engage with Gravis Risk who have vast experience so as to deliver professional due diligence partnerships for businesses making new investments or proposing to merge or buy other companies.

Statistics indicate only 15% to 25% of all mergers and various business combinations live up to expectations. 25% to 30% are reported to be outright failures, with the acquired entity being liquidated at a loss within 3 to 5 years of acquisition. The remaining 45% to 60% result in little or no apparent benefits to the buyer's shareholders to prevent this and similar occurrences, there is need to contact Gravis Risk.

In today's merger activity, we see an alarming trend of companies paying too much for the organisations they are acquiring. Declining equity prices are creating a disconnect between what owners want for their businesses and operating companies will pay. 
We help study key cultural and organisation effectiveness domains and they include:

  • Leadership: vision. mission. values, business strategy development, leadership effectiveness and ethics. 
  • Relationships: trust, collaboration, inter/intra group relationship, community and customers.
  • Communication: feedback, information sharing, employee trust in information
  • Infrastructure: formal procedures, processes, system, policies, structure and teams involvement and  
  • Finance: perception of financial health and the role of the employee and the level of financial comprehension and impact on the business. 
  • Cultural Descriptors: a list of predetermined values which can be customised to reflect the organisation's values.
  • General Climate: open-ended questions that capture the stories and suggestions from employees.

The outcome of this is a cultural resume. This document shows that results of a cultural diagnostic and lays out the unique organisational culture of each business unit inside the target entity. The Cultural Resume helps stakeholders going forward and creating the measurable action plans for the cultural integration efforts for those going forward. 

Some of the tips we use to increase the potentials of our success includes:

  • The use of an appreciative inquiry when examining the culture of business units.
  • We use a validated assessment tool that collects both quantitative and qualitative data.
  • We include culture as a part of your due diligence process and be prepared to addresses the issues between business units with action.
  • We involve employees in the integration effort. 
  • We allocate dedicated time and resources for the project.