FINANCE
FIVE-MINUTE MONEY MASTERCLASS
FUNDING YOUR SOCIAL ENTERPRISE 46
There are lots of talented entrepreneurs creating solid businesses to solve the pressing social issues of the day but it can sometimes be difficult for these organizations to access mainstream finance. The social venture field is hugely varied, incorporating all manner of finance models and approaches. But there is a lot of help out there for budding social entrepreneurs – you just need to know where to look.
WORDS: RYAN MCCHRYSTAL
Be credible Some mainstream sources of capital aren’t open to social entrepreneurs, but there are pools of ‘social capital’ that only they can access. However in order to fully qualify, you must be credible. “In my own experience as a social entrepreneur and in supporting other social entrepreneurs to start and grow their ventures, there are a few things we’re clear that all ventures need to have in place to succeed in scaling,” says Belinda Bell, programme director at Social Incubator East, which provides intensive support for people with an ambition to set up or grow a business dedicated to making positive social impact. The top two, Bell says, are proper management and solid governance. “Proper day-to-day understanding of management information is crucial. A surprising number of entrepreneurs – both social entrepreneurs and mainstream – simply don’t understand the numbers well enough to be able to make good decisions,” she says. “It’s also important to have proper governance and this includes external individuals who hold the founder and others to account,” Bell adds. This is likely to be a formal board of directors or trustees, although initially it may be an advisory board. Either way, it must have the appropriate levels of skills and experience and a strong understanding of the market.
Avoid planning problems Particularly with new, unproven initiatives or those involving a big increase in activity, organisations can be over-optimistic, often making unreasonable assumptions. Carolyn Sims, head of banking at Charity Bank, says: “Organisations need to assess their projections dispassionately and err on the side of caution in their expectations for income and expenditure and on how quickly the increase in activity will occur.” Organisations should also be willing to identify skills gaps and recruit additional help as appropriate, whether it be more staff or external professional support. Having identified probable project costs, organisations often forget that projects rarely go to plan and underestimate the contingency they need to cover unexpected events. “Organisations should identify the risks involved, such as the effect of bad weather, and hold an appropriate level of contingency funding,” Sims says. Another common misconception is that, if an organisation can demonstrate an ability to repay a loan, asset security is not required. Although a lender will primarily be concerned with demonstration of the borrower’s ability to repay out of its cashflow, security provides an essential alternative source of repayment if the borrower suffers severe stress.