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Diversifying income streams – emerging lessons from the Enterprise Development Programme

There are parts of the voluntary sector that are used to government funding taps being turned on and off.

Those sectors have been trying to understand how trading and enterprise can become a greater part of their income stream to avoid the pitfalls that come with a reliance on government funding. The pandemic period has seen a huge amount of unpredictability regarding the money that might flow from government to address different issues. Sporadic injections of cash have been announced for certain sectors throughout Covid-19, but these investments are inevitably going to be short lived, and the post-pandemic period will likely lead to a tightening of purse strings in some areas.

With the recent cuts to UK Aid, these concerns are a preoccupation of many in the sector. The time may be right to get serious about the potential of income that is not from a grant, donation or from fundraising, also known as enterprise income.

Access – the Foundation for Social Investment has a mission to build resilience in charities and social enterprises. In 2018 we launched the Enterprise Development Programme (EDP), beginning a pilot year working with two sectors; youth work and homelessness.

Similar to the international development sector now, the youth sector had seen massive cuts to budgets as a result of austerity. It was a sector we wanted to support in doing things differently.

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Since then, we have supported over 200 organisations to progress their trading activity through the EDP programme. We now work across six different sectors, from environment to mental health.

We are still learning and building the programme. Here are some of the key lessons we have learnt so far:

1. Enterprise is not a minority sport

One of the paralysing things when thinking about enterprise is that it can feel as though you’re turning a tanker round in a pond. But the reality is different. Although some culture change and skills development is needed, achieving non-grant forms of income generation are within reach of the many, not the few.

When we reviewed in depth the finances of a range of organisations within one of our pilot sectors in 2019, we found that very few organisations generated zero enterprise income at all, and hardly anybody earned all of their turnover from it. There was also an equal spread up the ladder, from those generating 10% from enterprise income, up to those generating 90%. The lesson is to start somewhere and build gradually.

2. Enterprise needs to be accounted for

Right from the start of the programme we identified a need for financial systems to improve, as organisations look to boost their trading income. Where systems have been built to monitor block grants coming in and being spent until the money is all accounted for, finances need adapting to be able to cope with a different shape of income which might come more frequently and in different amounts.

Whether it’s related to an expanded customer base needing clearer invoicing and credit control, or a separation of cost of sales and overheads, which needs a new management structure to track profitability, or simply a need to take payments in different ways, doing enterprise properly is likely to need an upgrade of systems, skills or both.

At the outset we put plans in place for participating organisations to benefit from the input of expert accountants: those experienced both in charity accounting and trading models. It’s a relatively minor part of our programme and budget, but it is arguably proving the most valuable.

These accountants have been helping with everything from software set up, to pricing strategy, to reporting. Around 40% of participants are benefitting from this service, and the feedback is consistently strong, with many saying it has completely transformed their understanding of their finances and created the foundations for their income growth.

3. Enterprise does not always need fresh ideas

There is rarely a genuinely new enterprise idea. The best entrepreneurs borrow other people’s concepts and re-apply them. So enterprise development need not start with idea-paralysis. Look around you and see what others are doing, get inspired, and work out what you can apply to your context. In our programme we promote peer-learning and networking wherever possible for exactly this reason.

And if you’re still not convinced, you should explore the most common enterprises we supported in the first three years of our programme: training and consultancy services, furniture recycling businesses, coffee shops and upcycling/charity shops.

Of course we all get excited when something different comes along. One social enterprise works with young people to take spent coffee grinds from cafes and using them to grow Shiitake mushrooms to sell to local restaurants. But that’s the exception rather than the rule, and even then the more out-there ideas are usually bolted-on additions to more standard enterprise models.

Want to try enterprise?

Our Enterprise Development Programme is already working successfully in six different sectors. There are insights you could gain from these 200 domestic charities trying, who are trying to reduce their grant dependence. We’re keen to share our learning.