The National Post has written two articles on Canadian hospitals and their Tim Horton operations.  As these articles deal with the nexus between our charitable sector (very important) and Tim Hortons (vital) I feel I must comment.

Both articles say high employee costs are causing these businesses to lose money.  There are no financial statements provided and it is not possible based on the information provided in the articles to know exactly what is going on.  There is no information on any other inputs such as lease costs, franchise fees, etc.  The implication seems to be that almost every Tim Hortons makes lots of money by just paying everyone minimum wage.  I am not sure if Tim Hortons necessarily will agree with that characterization and they may argue the price point of the coffee and food, the value of what is being sold, the marketing etc. make the franchise succesful. 

The more important issue is that there is currently huge pressure on charities to consider diversifying revenue including earned income and “social enterprise”.  The concern I have is that when private enterprise runs a business it has a high rate of failure.  When a charity runs a business I am not sure if it is more or less “succesful”.  I fear that in some cases the charity run business may just seem to be more “succesful” (ie. last longer) because in fact the charity often does not know what it is doing, it is losing money in a big way but not aware of it and has capital and reserves to sustain a loss. 

Also, when you look at the various revenue streams together (fundraising, government, earned income, investments) and expenditures the charity breaks even so everything seems fine.  Therefore instead of the business making money for the charity (which may have been the reason for setting up the business in the first place) it actually bleeds money and is subsidized by other funds. 

Running a business is not easy and requires various types of skills -which some charities don’t have.  But just before you make fun of charities, I was out for breakfast with an extremely succesful business person who is now chair of a major charity in his retirement and he was quick to acknowledge that his charity is more complicated to run than businesses he ran. 

The National Post is missing a few points – in some cases a charity can run a business with only volunteers (who are not paid at all) and they can still lose money if the cost of capital expenses, supplies etc. is greater than the revenue. Keep in mind in some cases a charity may want coffee available for people doing charity work and the primary motivation may not always be to make a profit.  Or it may want to provide entry level jobs to people with disabilities or addiction. 

Do we remember the Iraq war – private US contractors hiring people like new truck drivers for $150,000 per year.  Meanwhile, some charities had highly trained doctors from North America working for them in Iraq at $12,000 per year.  The notion that private enterprise always gets labour for less is a fallacy. 

Also, just before we get too excited about private/public partnerships or private enterprises fixing all problems remember ORNGE.  If don’t know what I am talking about then check out the 30 or so articles in the Toronto Star:   If one just looked at the two Tim Horton articles and the ORNGE articles you might come away with this ‘charities are good at losing money, private business is even better at losing money’

The key point is that charities must be careful before deciding to take on an earned income activity whether it is to make money or to achieve an important social goal.  They may wish to check out a site called Enterprising Non-Profits.  It has lots of good information for individuals and charities to think about before setting up business for a charity or running a social enterprise.

Also, in some cases expecting charities to be great at doing charitable work, running businesses, investing and fundraising may be expecting too much.

How to lose $260K at Tim Hortons: Let the government run it and pay staff $28/hour

Tim Hortons with $26/hour servers putting Windsor hospital $265k in the hole