05/07/2011

By Brian Chernett, Founder, The Academy For Chief Executives

The world is changing — has changed - and approaches to funding for Social Enterprises is also changing. How enterprises approach the funding issue and how that will be assessed by investors was the subject of an RSA Social Entrepreneur Network meeting that I attended recently. The message was that there is capital available for investment and that ‘the issue is the investment readiness of the social enterprises'.

The Charity Bank will lend at very low rates, typically less than 0.5%, for enterprises that meet their criteria and are investment ready. Those criteria are all about social impact as a representative of the Bank, Geoff Burnand, told us. They will assess social impact using 5 core elements;

- Mission fulfilment
- How has the enterprise changed peoples’ lives? (How many have been impacted?)
- Wider community engagement (local, national, international)
- Strength of organisation: management accounts, trustees
- Impact of the loan: Does it drive the real growth of social impact?

Other speakers, including those who have achieved funding for Social enterprises also emphasised the need for clarity in defining the cause and the impact that it will have. The business model, however, will also be important including revenue, costs and profitability. What one speaker described as ‘trajectory’, the direction of the enterprise and its ability to continue to earn revenue, also needs attention. If all this sounds like the process of funding a business, it is, it is just the criteria that are different.

Standing out in the crowd — being the ‘purple cow’ as one speaker put it — will make it easier to be seen. Being memorable and remarkable is vital in a crowded market to ensure that people understand what you do and why. This marketing approach will need to be built on sound underlying numbers and organisation of the enterprise.

Several speakers talked about story or narrative as being important. All business plans need to explain why the enterprise exists, what it will do and how it will achieve ‘social impact’. The better that is set out, the more likely it is that investors and funders will engage with the enterprise. In particular, you will need to be able to clearly explain what it is that makes it right to invest in your approach to the cause.

Having the right company form was also discussed and I came away interested in researching the Community Interest Company (CIC) company form. A CIC is a company that is working for the benefit of the community. It is incorporated under the Companies Act 1985 and registered at Companies House in the UK. In contrast to ‘not for profit’ companies, CICs can make profits and borrow against assets but those assets are protected by an 'asset lock' that prevents "the CIC giving away its assets for less than the true market value”. The asset lock also provides legal protection against demutalisation and 'windfall profits' being paid out to members and directors. A CIC has greater flexibility than a registered Charity though it receives none of the tax benefits of charitable status. As a result it is subject to ‘light touch regulation’ from the Office of the Regulator of Community Interest Companies. Directors can be paid by a CIC but remuneration must be “reasonable and in the best interests of the CIC and the community”. CICs must deliver an annual community interest report.

For charities, having a CIC allows them to trade and to set the articles to ensure that the profits will always come to their cause and to be open about any deductions that are made to cover costs of training and salaries. Indeed I'm thinking of setting up my own CIC to support the Ella Foundation. It would offer training, mentoring and coaching in leadership for commercial clients in order to support training mentoring and coaching in leadership for leaders in the third sector.

So the message is positive. There is investment available for those who do the necessary work to make sure that they are, and are seen to be, investment ready. Setting the enterprise up in the right way, putting the basics of financial control and planning in place and making sure that the purpose is well understood are areas where there is plenty of support and advice available from those who have done this before.

The Ella Foundation will be using an approach to knowledge transfer and to strategic mentoring through peer groups that is based on many years of successful operation in the business world through the Academy for Chief Executives. Our first meeting is now full and we will be scheduling further groups as demand dictates. Please get in touch to find out more.

Brian Chernett (brian@chiefexecutive.com ) is the founder of The Academy for Chief Executives and Chairman of Academy Group ACE2. Having stepped down as Chief Executive of the Academy, Brian is now developing his own coaching and mentoring business — Wisdom Forums - for senior executives and building a new charity, The Ella Foundation, to coach and mentor Chief Executives in Charities and not for profit business.

Watch the video below featuring Brain Chernett, Founder of The Academy For Chief Executives, discussing three top tips for a sustainable growth in your business.

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