Amongst last week’s UK social enterprise news was this story in The Shetland Times about the difficulties encountered by Shetland-based social enterprise, COPE. The company, which provides training, support and employment opportunities for people with disabilities, is in the process of working out how to deal with “the loss of more than £100,000 of core funding” from the local council.
In the story, COPE’s chairman, Jimmy Smith, explains: “Luckily we have a grant from the charitable trust, and that covers the rental of our building and some of the administration staff, but it does not cover any of our participants or our support workers.”
Smith goes on to talk about the success of COPE’s businesses, which include a soap company and a pet supplies shop saying: “We actually cover more than 50 per cent of our costs with what we sell to the general public, though there are bits of that which we think we can do much more efficiently.”
The position on grant income within UK social enterprise is a fraught and ambiguous one. That’s not because there’s a major dispute over the core principles. Umbrella-body Social Enterprise UK(SEUK)’s new membership criteria for social enterprises state: “Social enterprises are businesses so they must aim to generate the majority (more than 50%) of their income through trade (rather than from donations)“.
Elsewhere, in the booklet Why Social Enterprise? – a guide for charities, which I wrote for SEUK and Pilotlight, the Salvation Army’s Social Enterprise Development Manager, Steve Coles, talks about “a spectrum of social enterprise” and says that for his organisation a social enterprise is: “a market-led venture, aiming for profit but achieving at least 70% of income from trading, while striving to achieve social impact for those furthest from the labour market.”
While they’ve often been (and will inevitably continue to be) the subject of much heated debate, the percentage figures mentioned here are not the key point. The key point is the fact that a social enterprise is widely acknowledged within the sector to be an organisation that aims to generate as much of its income as possible through trading but which, based on its attempts to deliver wider social impact.
The 2011 State of Social Enterprise survey, Fightback Britain, showed that 32% of social enterprises responding to the survey were earning 75% or less of their income through trading, with 17% earning less than 50%.
It also showed 17% of relatively large social enterprises, those with a turnover of £250,000 – £1million, reporting that grants – either from the public sector or Big Lottery/grants trusts – were their major source of income.
Unfortunately, one of the more interesting question about social enterprises and grant income is one that’s simultaneously disadvantageous for social enterprise supporters to ask and potentially both disadvantageous and difficult for social enterprises to answer accurately.
That’s the question of the extent to which receiving a grant (or not receiving it) is the key factor in whether a social enterprise continues to exist – either at all or whether it continues to exist while delivering a positive social impact.
Knowing the % of grant income received as part of an organisations overall turnover doesn’t necessarily tell us that much about the relationship between grant income and viability. It depends what that grant income is paying for.
For example, if social enterprise A somehow manages to run a commercially viable cafe that breaks even (or better) by selling tea and cakes but gets a grant – equal to 30% of its income – to put on exhibitions of local artwork in the cafe, 30% of its turnover comes in grants but its core business is not grant dependent.
On the other hand, if social enterprise B runs a cafe that loses money on selling tea and cakes, and receives a grant equal to 10% of its income to subsidise its running costs, it only receives 10% of its income in grants but its core business is grant dependent.
The only thing these two situations really have in common is that the social enterprise movement hasn’t yet worked out how to talk about either of them. We’re very comfortable talking about start-up grants, which many businesses – including entirely private-owned businesses working in socially useful sectors – receive to help them get up and running.
We’re uncomfortable talking about grant-funded activities – such as social enterprise A’s art exhibition – because accepting that they exist means accepting that the traditional charity model both still exists and remains a good way to fund stuff that’s social useful but doesn’t generate any income.
Social enterprise B’s subsidy makes us even more uncomfortable. How can we, on the one hand, promote social enterprises as a fundamentally better, more sustainable way of doing business while, on the other hand, drawing attention to the fact that many social enterprises will go out of business if they lose grants towards core costs?
What we definitely shouldn’t do is continue to avoid the issue while trotting out the usual platitudes about how social enterprises make profits and reinvest them in the community. A few of them do, and that’s great but far more operate in efficient business-like way while delivering social good at relatively low annual cost to the council, grant-making or larger organisation that’s subsidising.
Rather than pretending social enterprises don’t receive subsidies, we should be concentrating on finding to better ways to explain and demonstrate the social impact that those subsidies pay for.
In challenging economic times, many social enterprises face having subsidies reduced or cut. In some cases these decisions may be justified, some subsidies are just a waste of money. In other cases, social enterprises are delivering fantastic value for money by generating significant social impact for the people they exist to serve at the highest possible level of commercial viability, and in doing so they’re ultimately saving the state huge amounts of cash in benefits and other costs.
As a movement that prides itself on being both principled and pragmatic, we shouldn’t let dogma around trading prevent us from making the case for subsidy.