How can more charities be encouraged to move from voluntary to trading income?
Dan Hird, head of corporate finance, Tridos
In the current economic climate, traditional sources of income such as voluntary donations, legacies and grants are under pressure. The introduction or expansion of trading income (charity shops, e-commerce, cafes, government contracts, etc) is a way to diversify income streams in order to improve sustainability and replace lost voluntary income.
Some might feel that charities shouldn’t be engaging in commercial trading activities on moral grounds. However, so long as the surpluses generated from these are ploughed back into core charitable activities, it seems a sensible strategy.
Some charities have well-developed commercial trading activities, which can support the raising of external finance. The £10m bond raised by Golden Lane Housing Limited (a trading subsidiary of Mencap) earlier this year is a good example of a successful trading operation supporting the scaling of a charity’s principal charitable objective.
Katie Mountain, impact investment analyst, Nesta Impact Investments
Grants and donations play such an important part in our social sector, but over-reliance on one source of income inevitably leaves charities at risk. While it won’t be right for all, introducing trading income as a source of revenue will diversify this risk for many charities and, importantly, generate unrestricted funding.
Developing a new revenue stream is no easy task. Any organisation looking to diversify their income will need the appropriate skills, ambition, appetite for risk and funding to make it a success. This can be overwhelming for a small or medium-sized charity, especially given all the legal, regulatory and tax implications of such a venture.
To encourage charities to take this leap, they need access to the right advice, expertise and support. Grant funders and social investors should work together to provide an appropriate package of support that helps mitigate that risk.
Amanda Newman, marketing & communications manager, Newground CIC
It’s all a question of guidance and support. We were lucky to have a senior leader who came from the private sector and had skills and experience needed to make the big changes we did. But many charities don’t have this. They know they have the vision and dedication to develop innovative products and services, but selling these commercially against private sector competitors might seem a bit daunting.
However, there are organisations out there that provide this advice and support. Social EnterpriseUK and regional social enterprise networks are good places to start. People should also take advantage of personal networks to access the commercial experience they need to support them on their journey.
Gordon Shallard-Brown, project manager, Pilotlight
Small charities that Pilotlight works with often recognise the potential of social enterprise to diversify funding and improve sustainability. However, trading can be seen as a big risk; there are many options and perceptions, and a commercial focus may threaten a charities’ ethos or suck up scarce resources.
External, expert support is vital when starting socially enterprising activity. Chief executives of small charities often feel isolated, and the confidence and learning that comes from discussing and validating new ideas can be the catalyst to turn them into reality.
Planning is essential – including thinking about an organisation’s strengths and analysing the market. It’s vital that trading isn’t a kneejerk response to losing funding, but planned as part of an organisation’s long-term strategic vision.
Tim Evans, CEO, Worth Unlimited
Charities need to see that social enterprise is not a distraction from their vision, but is often a more sustainable way of delivering it. It does, however, require clear business planning, including articulating social purpose in terms of either who it employs or the services it delivers for communities – in particular, how it contributes to local economies.
Our experience is that you need the right people to manage the cultural change that a business-like approach demands. It shouldn’t be a reflex reaction to a difficult funding environment, but a clear vision for the delivering the mission of the organisation. There are many challenges, but it’s a journey worth making.
Dai Powell, chief executive, Hackney Community Transport Group
HCT Group is a social enterprise, earning 98 per cent of its revenues from trade and reinvesting profits into its charitable purpose. The journey we took – from grant-funded community transport charity to social enterprise in the bus industry – has involved learning to compete in tough markets, win business and deliver to a high standard. It has required a fundamental change in our way of thinking about income, delivery of social mission and organisational culture. Furthermore, we’ve learned that social investment is not a funding stream – it’s debt for investment where you must generate both social and financial returns.
For us, the path of social enterprise has led to greater social impact and sustainability. But it’s not right for everyone. Charities shouldn’t be encouraged by others to make the move; it is a decision for individual charities to make at their most clear-eyed.
This article first appeared in The Fundraiser magazine, Issue 36, December 2013