Social enterprise: sustainable funding for charities Charlotte Chung – Policy and Research

What is Social Enterprise? Social enterprises are businesses driven by a social purpose. They: Have a social mission core to their purpose (set out in their governing documents) Generate the majority of their income through trade (revenues mainly from goods and services provided, not grants or donations) Reinvest the majority of their profits (towards the social mission) Are autonomous and independent organisations They take a range of different legal and governance structures. Many started their life as charities, public sector, private sector.

Social Enterprise in the UK - Setting the scene 70,000 social enterprises in the UK (5% of all businesses) Contributing £24 billion to the UK economy and employing over 800,000 people. They operate in a diverse range of sectors from health and social care, to renewable energy, transport, retail and housing.

Social Enterprise UK Established in 2002 as the national body for social enterprise Membership organisation: ~ 600 members reach to over 10,000 Bring together all the different forms of social enterprise under one umbrella Main purposes: Supporting the social enterprise thrive Developing the evidence base for social enterprise Influencing the national policy and political agendas Showcase the benefits of social enterprise

Changes to the public sector: Funding cuts Dwindling grant funding Increase in commissioning services vs. direct provision Changes in structures of contracts:  Payment-by- Results (including, Social Impact Bonds)  Requirement for ‘Social Investment Partnerships’ e.g. DWP Innovation Fund The rise of social investment: World’s fastest- growing market for social investment In 2011/12, market grew by almost a quarter to £202m through 765 deals Big Society Capital Social enterprise Increased trading

Increase in earned income > £10 billion since 2000/01 (92%) > trading with government - statutory contracts more than doubled from £4.5 billion in 2000/01 to £11.2 billion in 2010/11  displaced grants + result of the increased commissioning vs. direct provision > trading with public more than 40% – or £2.3 billion in real terms

Fulfilling your social mission in a profitable and sustainable way: Customers Move from satisfying your funders to satisfying your customers - this could include a understanding the change in previous relationships e.g. moving from grant to contract with same local authority The ‘p’ word: Profit Social enterprises are for-profit companies. Aim to make more money delivering their products and services than it costs to deliver them. No need to prioritise profit above all else but being focused on delivering a social mission in a business-like way. That means being explicit about what you’re selling and who you’re selling it to. A product is not necessarily a slice of cake or a t-shirt – it could be 12 weeks of mental health awareness training you sell to a local authority. Constantly looking for new opportunities to do business  It’s not completely different from a charity applying for a grant or launching a fundraising appeal for a new project. The difference is that your starting point is the market.

Commercial mindset Most products or services that you deliver need to be paid for by Someone. Products or services not paid for by someone have to be cross-subsidised e.g. HCT Group Adopting a commercial mindset is not just about selling things. It’s about selling things at a profit – or at a loss that you understand and have budgeted for. Know your costs = a transition to becoming more ‘enterprising’ will also require an review of what skills are available in the charity (e.g. Pricing, market research, marketing etc.) A commercial mindset can actually enhance your social mission....

June O’Sullivan joined Westminster Children’s Society Traditional charity running nine small nurseries in the London Borough of Westminster Dependent on a block grant from the local authority 2005 – June became CEO and decided that the charity had to become a social enterprise: “I was determined to move us away from the charitable model. I didn’t want to ruin the ethos and the fantastic history the organisation had but I didn’t feel that if we were to rely on our charitable model we would survive.” Challenge – move from grant dependency into a sustainable business while continuing to provide affordable service for children and parents

Part of the answer was expansion. Renamed London Early Years Foundation (LEYF) in 2009 Opened nurseries in other London boroughs creating economies of scale: “Our business model is quite simple: increase occupancy; increase revenue; reduce costs. That’s it. It’s wh at you have to do.” Initially, many LEYF staff were worried about the social mission Shift in culture and thinking to understand new approach and benefits “What I had to explain to them is that we had to balance the business model so that way we would actually be producing enough profit to give many more children a free offer.”

The Salvation Army is a Christian Church and registered charity with over 50,000 members and over 4,000 employees in the UK Salvation Army Trading Company Ltd (SATCoL): charity shops, clothing recycling, a company selling brass band instruments, a bank and an insurance company. “Their job is to sell stuff at a profit and hand the money over to the Salvation Army.” Also run charitable services on enterprise basis....

Employment Plus – a back to work service that receives 90% of its income from contracts, mainly from delivering the Work Programme as a sub- contractor. Homelessness services – which run 65 hostels + generates income from housing benefit and Supporting People contracts.  Both provide training and work experience for people who use their services.  Enterprises work together e.g. Employment Plus runs electrical testing business and trains hostel residents to gain employment

28/11/11

Social Investment: state of play In 2011/12, market grew by almost a quarter to £202m through 765 deals. 29 active Social Investment and Finance Intermediaries Increase in secured lending from 84% in 2010/11 to 90% in 2011/12, however greater diversity of social investment Key sources of finance: majority from central government; a quarter from social banks (via deposits); <5% from trusts and foundations

Players and products

...other innovations in social investment Crowdfunding - small amounts of capital from a large number of individuals to finance a new business venture Peer-to-peer lending Community shares - raising money from communities through the sale of shares or bonds to finance enterprises serving a community purpose Social Impact Bonds – a form of outcomes based contract

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