Charitable trading can bring huge rewards, but stepping into the new world of enterprise can be challenging. Eastside Primetimers director Bernice Rook offers six top tips to make your enterprise a success.
Trading can offer charities a valuable source of unrestricted funding at a time when many need to diversify their income generation activities. Trading can also offer a way of delivering social impact to beneficiaries by getting them involved in the enterprise. Helping them to learn new skills, reducing their social isolation and building their confidence are just some of the benefits, and there are many more possible impacts too.
The potential is therefore significant, but developing a new way of working can be daunting. We at Eastside Primetimers have supported many organisations on this journey. We co-designed and delivered one of the first enterprise development programmes for the third sector. Spark was a £3 million project to support social enterprises to help prevent and tackle homelessness and we supported 30 organisations to develop enterprises through this fund.
Of course, a robust financial model is critical and this needs to account for start-up costs and the lead time between investment and the start of trading. Drawing upon our team of consultants’ wide experience we’ve put together six top tips.
1. Be clear on your objective: why are you doing this?
The temptation is to set expectations too high and be too optimistic about how much profit can distributed into the parent organisation. There are usually additional costs when delivering social impact that reduce profits. You will need to trade off impact and profits, so it is really important for consistent decision-making to understand which takes priority or whether to have a balanced approach, as Sarah Dunwell argues elsewhere on these pages.
For instance, we helped youth charity Chilypep to develop a business to offer mental health awareness training to companies. They approached this primarily as an income generating tool rather than involving young people – their main beneficiaries – in the delivery of the service. They were very clear with themselves that this was an income-led initiative to recycle profits into the charity which would then be used to engage young people.
2. Consider all the possible models of trading
Remember there’s not just one trading model. Think about all the opportunities that are open to you. For example, you could charge for some services that are currently provided free of charge, you could sell a similar product or service into a different market or you could develop a new product or service. Consider what assets you have – these might be buildings, people or particular skills and knowledge.
Building trading activities upon what you already have can reduce the risk at start-up and allow you to pilot your enterprise before investing further.
Also consider whether you could work in partnership with other charities so that you’re sharing the risk.
3. Invest in the right skills and resources
You may be great at securing grants and donations, but trading is a completely different approach: you need to identify what the potential customer needs and demonstrate how your offer will meet that need. You may need to look outside your current team for the sales and marketing skills that you require. Also consider recruiting new trustees with strong commercial skills and contacts.
4. Be ready for some frank discussions
In our experience, you will need some frank discussions with your board and staff about how trading can fit with the culture, ethos and messaging of your charity. Many of your existing trustees and staff will be motivated by the voluntary and philanthropic nature of your organisation and talking about trading or enterprise will be a big mindset shift for them.
Your clients too may need to think about your organisation differently. However, we’ve found that by charging existing clients a small amount isn’t always perceived negatively – there is an opportunity for them to move from being passive recipients of charitable support to active consumers of your services.
5. Be realistic about the time it takes to turn a profit
Give it time and be realistic about how long it might take to develop a new product or service before it begins to generate significant trading income. Remember too that the cashflow pattern may be different to what you’re used to. You may need to invest up front in order to take advantage of an opportunity.
Be realistic about scale: after all most social enterprises are small businesses with a median annual profit of £12,000.
6. Get networking
Ask for help – there is support available. The wonderful thing about the third sector is that people are often prepared to share their experiences “warts and all”. If you are thinking of developing a community café, for example, find one that’s successful and understand what makes it so. Most local authorities are keen to encourage enterprise and trade and will share details of business support available – use it! Local Enterprise Partnerships and their associated Growth Hubs cover all areas too. Find out what yours is doing to encourage social enterprise and start-up businesses. Tap into the many informal business networks locally – there will be a lot!
Eastside Primetimers social enterprise & charity consultants Helen Nott, Nikki Wilson and Shona Sinclair also contributed to this article.
This article originally appeared in Enterprise Matters, the second edition of our EP Insights management briefing for social sector leaders. Our aim is to offer a regular, thought-provoking selection of senior-level knowledge and practical advice that CEOs, managers and trustees can make use of to perform their roles more effectively. You can read and sign up for EP Insights at https://www.ep-insights.org/