Unlike standard businesses, social enterprises measure their success not just on profits, but on their social and environmental impacts too.
The concept of triple-bottom-line accounting is central to this, as an essential tool for social enterprises to monitor and improve the work they do.
It aims to measure the ‘three Ps’ of people, planet and profits and account for their success, with equal weight on each.
A broader view of the bottom line
In traditional accounting, the bottom line refers to a business’s overall profit or loss – the net income figure recorded at the bottom line of its income statement.
But social and environmental movements in recent decades have led to an awareness that looking purely at profit means you’re not getting the full picture of a business’s impact on the world.
A company might report its success in the form of high profits, while at the same time be exploiting workers or polluting natural habitats, causing social and environmental damage that goes unrecorded.
The need to redefine what makes a successful business, and to measure success in a way that goes beyond profits, led to the development of the social enterprise model in the late 1970s.
This was initially designed with the three principles that we now call the triple bottom line – financially viable independence, creating social wealth, and environmental responsibility.
How to measure your triple bottom line
Measuring profits is relatively straightforward. After all, any money that passes through your organisation can be recorded as a specific figure.
Putting a number on your impact on people and the environment is harder, however. And depending on the overall aim of your social enterprise, it can be difficult to put your own impacts and achievements in the context of others.
Combining and integrating the three Ps is difficult, because they don’t have a common unit of measurement to make them comparable.
There are varying arguments about how best to approach this. Some suggest a monetary figure should be attached to all three categories – although this tends to raise ethical and philosophical questions about how you can prescribe a value to something like a natural habitat, or to a community’s social outcomes.
Another approach would be to use a universally recognised index, which would allow reporting to be compared across industries.
However you go about calculating your impacts, a good place to start is to take stock of all the areas in which your enterprise has an effect on the three Ps.
Taking each category in turn, consider what your organisation does that relates to it, either good or bad. From there, you can look at metrics to measure and tangible goals to set. For instance:
- people: As a social enterprise, improving outcomes for people in your community or the wider world will already be central to the work you do. Look at how you measure this as part of your triple bottom line, but also consider your internal practices when it comes to hiring, training, benefits and so on
- planet: Consider your energy consumption through things like travel and office use, as well as the types of resource you’re consuming, and your production of waste. There are several measurable metrics to look at here, such as carbon emissions and electricity consumption
- profit: Look at the usual measures of profit, alongside risk management and governance issues. Profit might not be the end-goal, but it’s still important to fund the work you’re doing and help you to grow and improve.
Talk to us about accounting for your social enterprise.