Charities want to trade as social enterprises, but face poor access to finance

Charities want to trade as social enterprises, but face poor access to finance
Charity Times, by Andrew Holt
28.05.13

Results of a survey about attitudes to social enterprise among UK charities were released today by Social Enterprise UK, and its findings are ‘overwhelmingly positive’, according to the national membership organisation.

Currently 45% of registered charities identify themselves as social enterprises and more than half of the voluntary sector’s income is earned through trading (selling goods and services) and delivering government contracts, rather than donations or grants.

In a survey of more than 100 charities, 92% said they would like to increase their income from trading and government contracts in the next three years.

When asked how they feel when they hear about social enterprise, 52% chose ‘excited’, 29% chose ‘interested and want to know more’, 12% chose ‘confused’ and only 7% chose ‘nervous’.

Charities feel held back by lack of business skills, poor access to finance and trustee scepticism.

When asked what are the barriers to their charity becoming more socially enterprising, 49% chose ‘lack of appropriate business skills or experience among workforce’, 45% chose ‘lack of access to investments/loans’, 42% chose ‘lack of knowledge about social enterprise and where to start’.

But 1 in 5 (18%) identified ‘scepticism from trustees’.

The majority of those surveyed (90%) said they are concerned that traditional voluntary and grant funding will become more difficult to secure in the coming years.

Three quarters (74%) of respondents said there is not enough support available to help charities make the transition from voluntary to trading income, and two-thirds (63%) said more government support was needed.

Next week will see the UK host an event on social investment in run-up to G8.

Social Enterprise UK highlight that social investments create a ‘blended return’ for investors – one that combines a social return as well as financial one and can help social enterprises and charities raise capital that they might find difficult to secure from traditional investment sources.

Social Enterprise UK’s chief executive, Peter Holbrook, said: “Charities are generally very positive about social enterprise and keen to trade to generate income. Social enterprise is gaining real traction and is better understood by the voluntary sector. It isn’t at all unusual for charities to be very business-minded now.

“There will always be a need and a role for philanthropy, but charities wholly reliant on donations and grants can be very vulnerable to external forces out of their control.

"We have seen legacies tied up in a slowing housing market and while the jury is out on whether or not giving is down, austere times are here to stay and we’ve already witnessed some charities closing.

“The changing landscape is forcing charities to adapt. As public sector markets are opened up to competition, charities have to be business-savvy to bid for and win contracts, and able to prove their social impact.

"This is a new way of operating for many. But the hard-won Public Services (Social Value) Act that came into force this year provides a critically important tool for charities when selling their services to commissioners.”

Karl Wilding, head of policy and research at NCVO, said: “Enterprise in one form or another is a core part of what many charities do. NCVO’s research shows that the proportion of income the sector as a whole earns overtook the amount it receives in donations around ten years ago, and has continued to grow since.

“As the Marsh review highlighted the other week – enterprise is a skill that those in charities will increasingly need.

"We’re finding that our members are asking us more and more about commercial skills and strategy – and both Social Enterprise UK and NCVO can provide advice and support that’s right for our sector.”

Social Enterprise UK says that charities don’t have to change their legal structure; many social enterprises remain as registered charities.

For some charities a social enterprise will be just one part of their activities that will enable them to make a surplus so they can grow and invest.

The national body has published a guide for charities: Why social enterprise? which is available to download from www.socialenterprise.org.uk.

Social Enterprise UK examples of charities using business to generate income:

Some charities have changed the way they operate to be more business-like, such as London Early Years Foundation – winner at the National Business Awards 2013 for turning a vulnerable charity into a financially secure social enterprise.

While many large and well-established charities have set up trading arms to enable them to increase their income from social enterprise.

Founded in 1903, London Early Years Foundation (then called Westminster Children’s Society) had a long history working with children. When June O’Sullivan joined in 1996, it was a traditional charity running nine small nurseries in the London Borough of Westminster.

When she became CEO in 2005, O’Sullivan decided that the charity had to become a social enterprise to survive, but wanted to keep the organisation’s ethos.

O’Sullivan lead the change that saw the organisation move from a grant-dependent charity into a sustainable business while continuing to provide a service for children and parents who couldn’t afford to pay for it. In 2009, they opened nurseries in other London boroughs creating economies of scale.

“Ensuring we had a sustainable model to allow us to support London’s children for decades to come was our top priority. The staff and management team at LEYF have been able to create a structure and culture that will enable to us to do secure the organisation’s future”, said O’Sullivan.

Auto22 is a social enterprise car servicing and repair business, part of the national charity Catch22.

It provides servicing and repairs to the public on all makes of cars and light vans whilst offering young people the chance to gain real-work experience in a professional working environment.

St Mungo’s runs a number of social enterprises including the painting and decorating service ReVive. ReVive began in 2009, offering clients who had completed the charity’s painting and decorating programme the chance to work on live contracts, gain professional qualifications, and volunteer on a range of projects.

During its first year of operating, ReVive completed nine contracts, worth £43,000 and trained 13 homeless people in the skills needed to work on-site on live projects.

As the social enterprise arm of the charity Age UK, Age Concern Enterprises offers financial products and services to over one million customers. 100% of any surplus made is Gift Aided back to the charity, and in 2009/10 it returned more than £21million.