Social enterprise sector needs investment-readiness focus
The social enterprise sector in Wales is extremely diverse, delivering a range of services and providing invaluable employment at the heart of some of the most deprived communities in the country.
The benefits of the social enterprise model are widely understood to range well beyond maximising profits, with a far greater focus on added value and social impact.
The austerity measures are still snowballing through the public sector, placing an emphasis on value for money and efficiency, and also forcing the validity of existing and future delivery models to be questioned.
The sector must proactively address these issues, which in themselves present significant opportunity. Such proaction will require a huge shift of focus toward strategic business planning, income generation and financial management – as well as adopting a longer-term business mentality to embrace externalisation and insulate against less (grant) funding opportunity.
There is a clear understanding that the social enterprise sector in Wales has been embroiled in a grants culture, and the steady policy shift (from Welsh Government and the European Commission) to investment will come as a threat to the existing approaches of reliance on fundraising and non-repayable (grant) finance.
The future is moving toward a more repayable format of finance. This will not be much of a shock to the more developed sector practitioners, although for developing social enterprises, the thought of accessing loans will send a shiver down the spines of those still finding their feet in an evolving environment.
There is obviously going to be a real and significant gap between loan finance, what investors will consider, and the needs of developing social enterprises - not to mention a requirement to address the culture of grants, which for so long has represented the status quo of broad investment in Wales.
To tackle this, Welsh local authorities are seeking to unify their collective skills and experience to deliver a project which will bridge the gap between the current state of play, and tap into the legacy potential of the sector.
This will focus on developing strong, sustainable organisations that currently cannot access repayable finance, making them able to qualify for and access loans – creating an investment culture and investment-readiness.
This will be achieved through:
Trading income. The bedrock of any viable investment will be the generation of income. This lends itself well to the concept of social enterprise. Trading models will need to be challenged, with development and potential procurement opportunities explored. There should be clear planning as to how organisations can generate and grow income streams.
Business planning. There should be a short, medium and long term focus of operational and management planning – what gaps exist to achieve organisations’ potential and what funding will be required to meet them?
Liquidity. Does the social enterprise have adequate cash flow, budget management and financial nous to meet its operating needs? The project will explore how business and systemic improvements can develop a stronger and more liquid operation.
Adaptability. Does the organisation have the flexible funds that can allow it to adapt and change to secure its future? For example, diversification, income stream generation, the embracement of change and opportunity.
Durability. Does the organisation have access to funds sufficient to address the range of needs it will encounter in the future? Does it have contingencies in place? Are reserves in place?
Asset development/investment. Security is a huge part of obtaining finance and as a result, the acquisition and development of assets is invaluable within an investment context. This will form a core approach of the project, identifying and exploring opportunity.
Finance providers will consider whether a social enterprise can actually repay a loan, whether they have security to cover the finance, the correct management team and level of business planning in place. The responsibility of the local authority project proposal will be to ensure that these barriers to entry are identified and addressed.
The next steps for this approach will be to ensure that funding discussions progress with the Welsh European Funding Office, stakeholders and the sector itself to design and implement something that will make a meaningful and significant impact on the sector in Wales.