Over the last month, we have been discussing on our blog the feasibility of charities establishing a social enterprise arm. Securing and utilising social investment can be a key ingredient to the success of this transition, but is it suitable for your charity?
We discuss the opportunity below…
It is evident that some charities have transformed their scalability and impact with social investment, and below are just a couple of examples to share:
Motivation Direct – Sells Motivation-designed mobility products and training to humanitarian organisations and governments in developing countries. It has been operating for 25 years but in 2009 it launched its social enterprise arm with a £200k loan / quasi-equity from CAF Venturesome. It has since achieved:
- Increased impact: beneficiary numbers increased by 400%. In 2015 it worked with 85,000 people in 61 developing countries
- Increased income: £2.6 million of the charity’s 2015 income was from trading (52%), contributing £478,000 including Gift Aid
London Early Years Foundation – Transformed from a charity to being the UK’s largest childcare social enterprise with investment of £1.25m from Big Issue Invest & Bridges Ventures in 2014. LEYF began as the Westminster Health Society in 1903 delivering a health visiting programme. It opened nurseries during WW2 and became a social enterprise 10 years ago to become financially self-sustaining. Now they run 38 community nurseries across London. It was voted UK Nursery Group of the Year in 2014 and 2015.
At our event last week, guest speakers Jaishree Mistry, Lending Manager from Charity Bank and Melanie Mills, Social Sector Engagement Director from Big Society Capital, shared their top tips for securing social investment with a particular focus on loans.:
- Have confidence in trading proposition – The first step is to undertake a feasibility study, prepare a 3 year business plan and ideally test trade to assess if you have a robust and sustainable business model for your proposed social enterprise arm. It needs to generate sufficient income to cover costs and also generate surplus ‘profit’ through trading. It is essential that the social enterprise will generate sufficient funds to pay back the social investor as well as fund other activities of your charity in the long term.
- Demonstrate future planning – The charity needs to be financially sustainable to attract social investment so it’s important to act now and explore options before the charity gets into financial trouble if existing funding sources are dwindling.
- Seek sufficient investment – During the business planning process make sure costs are explored and sufficient investment is secured to cover the start up and initial running costs, in the early days. Don’t fall short at the first hurdle, be realistic!
- Put on a commercial face – The social enterprise arm should have a commercial and professional brand, that may be completely different to your charity image. The brand needs to appeal to businesses or consumers and compete effectively with mainstream brands!
- Scale of impact – Social investors want to know how the social investment and social enterprise arm will help you to further your social impact and scale it up! It’s not just about selling, so be clear on how your commercial model will help you to further your mission.
- The right governance – Having the right board is key to providing trust and security to social investors. Recruit a team with the right skills and expertise to help you deliver on the social enterprise arm and make sure you have a good financial reporting structure in place. .
- Sensitivity analysis – Have you reviewed all of the potential risks in the marketplace and assessed the sensitivity of your financial calculations if political, economic, social, technological, environmental influences were afoot! This should be factored into your business plan and demonstrated to investors.
- Consider the terms and conditions – Have you checked that your charity is able to borrow and have you read the terms and conditions of the loan agreements on offer. Different investors will accommodate different levels of risk and payment terms so check out the market place.
To help you assess whether social enterprise and social investment is right for your organisation, at Economic Change we can help you:
Faciliate a workshop with your team or trustees, prepare a feasibility study and business plan to consider the social enterprise & social investment options available.
Contact us to discuss your options now or email firstname.lastname@example.org
Economic Change is an approved provider for Big Potential, a grant that can help charities explore whether social investment is an option for them. It is focussed on supporting organisations working with disadvantaged/vulnerable groups, who want to consider social investment as an option to develop a social enterprise.
- Up to £30k available to fund feasibility studies and business planning to assess if the social enterprise model is an option and whether social investment is the right choice.
- Up to 50k available to fund securing investment, business development and operational support to launch.
Power to Change https://www.thepowertochange.org.uk – For community businesses that are rooted and accountable to their community and want to deliver trading services to meet a localised need. Funding rounds offer £50,000 – £300k to support the development and growth of community businesses.