Are you in an organisation think about earning, or maybe you’re doing so already and feel a little uncomfortable? Charities and other voluntary sector organisations are increasingly being cajoled down the income-generating route – to make up for shortfalls in grant funding. But trading (which many describe as social enterprise) isn’t for everyone and it certainly shouldn’t be entered into without careful consideration.
Before you start to think about business plans and legal structures, here are just seven (of many) considerations to help you assess whether pro-actively integrating earned income into your funding mix is right for you.
In no particular order (the route from asking to earning is not a linear one anyway)…
Get comfortable with the idea of making a profit
Money-making is a mindset not a dirty, hyphenated, couple of words. If you think that everything should be given away free to make it as accessible as possible, you’re probably not going to feel comfortable with trading.
But on price and access, Ian Bruce, founder of the Centre for Charity Effectiveness at the Cass Business School in London, argues that the low-cost/ no-cost route can, in fact, exclude more people than it includes. If your principled approach puts you out of business everyone loses, whereas a charging regime with affordable prices may sustain services for at least some.
This is not to say that all goods and services provided for people in need should be charged at cost-price, or any price for that matter – it’s not a matter of ‘if it moves, put a price on it’. I believe some services, rape crisis centres come to mind, should always be subsidised by the state, and others eg mental health counselling providers should charge according to ability to pay. So there would be an element of cross-subsidy with one group of service-users paying more, so others can pay less. And providers should make no apology about this scale of charges; indeed, it should be openly publicised!
Understand cost, price and value
A former banker I know, now a financial adviser of charities, social enterprises and other small businesses, is convinced that most voluntary and community sector (VCS) organisations pay too much for the goods and services they buy, and charge too little for those they sell. They pay catalogue prices (no negotiation) and invariably under-value (indirect and direct costs plus margin) their own enterprise.
Does that include you?
There’s a business principle that if your customers want a service that’s good, quick and cheap, they can have two out of three, but not all three. VCS organisations are keen to please and try to achieve all three but, unless you’re very smart and/or big, you’re unlikely to be able to make the figures add up.
‘Better not cheaper’ is a more sustainable mantra than ‘more for less’ – despite pressure from commissioners. And the story behind your products and services will almost always give you more of an edge over your competitors than price. Wearing your values on your organisational sleeve may also help to differentiate you from other providers.
Ensure your mission and money-making are compatible
At the most basic level, this is about checking that your constitution allows you trade. And make sure you know what charity law says about trading (many say, incorrectly, that being a charity means you can’t trade and can’t make a profit)
I’ve already alluded to my belief that the state should always pay for some services. We should not be letting government ‘off the hook’ but, conversely, I think some activities should always be charged for at some level by the consumer.
I would include voluntary sector training in this category; past provision of free training has, I believe, undermined the perceived value of adult learning – witness the tendency of some to book on free courses and then simply not turn up.
Don’t be seduced by the hype
While social enterprise – trading with a social purpose – has been around for decades (some would argue for over 160 years since the foundation of the co-operative movement) some, including grant funders and particularly local authorities, behave as though it is new and sparkling and something that we should all be doing.
Certainly, it’s a good idea to be aware of the options and implications for your organisation of going down the earned income route, but make an informed decision – making money from selling is not easy.
More recently there’s been an ongoing debate about the status of the ‘social entrepreneur’ which some automatically equate with someone who’s involved in social enterprise. In some circles, such people are feted as being dynamic and edgy with a licence to do their own thing. This is an exaggeration of course, but social entrepreneurs should be expected to take others with them if the entrepreneurial ethos is to be embedded in the organisation.
Know your competition
In the business world, this is about knowing who provides similar goods and services to you and you deciding that you can better their offering. In the charity world, this may be about identifying areas of duplication with other organisations. Where such overlap exists you may decide that they’re doing a better job and your specific expertise lies elsewhere. Or you might partner up with them – to collaborate rather than compete – increasing your capacity without losing your identity.
More broadly, you need to be aware of all the competition for the attention of your key audiences. A choir rehearsing on a Tuesday evening in winter, for example, is not competing with other choirs, the competition is anything which is more attractive than a cold draughty church – watching a TV at home in front of a fire perhaps.
Get real – have you got what it takes?
Passion about your cause is important, but it’s no replacement for having a good business brain, a head for figures, an entrepreneurial mindset, and a willingness to take assessed risks.
As a business model, not-for-private- profit trading has built in business disadvantages. You’re usually providing something others don’t, employing people others won’t and locating in places others don’t. These reason they don’t do this is because it won’t make them any money!
Can you answer the Why – What – Who questions?
Why? – there are good reasons to earn income: it’s unrestricted; in connects you with your service-users in a way that a free service doesn’t. It can bring skills such as tighter financial management to the whole organisation that can help sustainability. However, will it generate the right kind of income for your needs – will it be enough, reliable, and are you really committed to the idea of selling goods and services?
What? Have you got something, which others don’t, to offer for sale at a price actual or potential customers can afford, or that someone else is willing to pay for on their behalf? Remember that your competitive edge may not be price, but people must have a reason for coming to you rather than the competition or making do without if your service or product is not essential.
Who? This is about your team – paid and unpaid. Who have you got to work on the trading activity within your organisation? Have they got the skills and the mindset to give income generation your best shot?
US business writer Michael Gerber believes a successful small business has three essential roles: the ‘entrepreneur’ with the ideas and vision; the ‘technician’ happy to roll up their sleeves and get stuck in; and the ‘manager’ that brings it all together. Assuming you don’t have all three skills in one person, do you have a team with that mix and a commitment to make the journey from asking to earning?