Charities have to work harder than ever to raise funds. Public sector austerity has taken its toll on the ability to secure public funding for service delivery. And for many charities it is increasingly challenging to raise donations from the public, with changes in fundraising regulation and a number of negative media stories.
So it’s natural that many charities will turn to earning income through enterprise, which is partly what is driving the growth of the social enterprise sector.
I started in social enterprise back in 1980 (although we didn’t call it that then) as part of a team that founded a worker co-operative. Since then I have worked at the enterprise end of charities, setting up many successful enterprises that have delivered much needed funds back to the charity.
This might sound easy but managing the relationship between a charity and a social enterprise (or any private company) can be complicated. There are a number of potentially conflicting dynamics that can be challenging, including:
- Does the charity invest in its own social enterprise? This happens often but is generally something I would avoid if possible. Investing donor and other funders money in a commercial venture carries risks, not least reputational risk if the money is lost.
- Is it possible to put in place protections for the charity? In theory if the charity owns the enterprise it is protected, but that can put limits on its ability to raise investment elsewhere. Putting legal and commercial protections in place for the charity is important but can be seen as in conflict by potential investors.
The Charity Commission has opened a consultation on draft guidance for charities that have close relationships with connected non-charitable entities or organisations. I would encourage any charity working with a social enterprise, or thinking of doing so, to get involved in this, which you can find here.
Charity law firm Bates Wells and Braithwaite are arranging various opportunities for the gathering of views on implications of the guidance for its charity clients, details of which can be found here.
There are number of great examples of charities who have succeeded at making social enterprises work well and drive value back to the charity, including National Trust (Enterprises)and Hubbub. There are others who have ended making losses that have impacted the charity, for example RNIB Solutions.
My hope is that new guidance will help charity leaders and trustees to feel more comfortable taking the plunge into the world of social enterprise.
Patrick Nash has set up 12 social enterprises and charities over his career. He now advises charities on setting up, funding and growing social enterprises. More details at enterprise values.com