Page 19

A B U S I N E S S P L A N N I N G G U I D E TO D E V E LO P I N G A S O C I A L E N T E R P R I S E : P R E PA R AT I O N

How do you assess your attitude to risk? Your organisation’s attitude to risk will have a huge influence on the development process. Setting up a social enterprise entails a degree of risk; as with any business, there is some potential for failure. We’ve chosen to focus here on your attitude to financial risk. This is because it is almost inevitable that in the course of starting-up and developing your social enterprise, you will need to borrow some of the investment required. This is sometimes referred to as ‘investment readiness’ and may impact upon your decision to proceed with establishing a social enterprise. Investment finance for social enterprise can take different forms, e.g. grant aid, patient capital or loan finance. You will need to decide which is the most appropriate funding mix for your organisation and in doing so you must look at your organisation’s attitude towards financial risk and financial management. By considering your existing funding arrangements, you should be able to draw some conclusions about this.

You can start to learn more about your organisational attitude to risk by thinking about:

These questions may seem daunting at first but it is crucial that you think clearly about the financial and investment implications of developing a social enterprise. There are additional resources out there to help and support you. Your bank or a social enterprise intermediary may also be able to support you in assessing the investment readiness of your organisation. Social Investment Scotland has published a useful guide to loan finance – Taking a Loan of Finance. This will explain some of the terminology around the issue and support you to think through the issues around investment finance. The guide is referenced in the Resources Section.

What If The Business Fails? For many voluntary or community organisations aspiring to develop a social enterprise this will be one of the main barriers to development. Your organisation might have a very low risk threshold and, because failure is not an option, then anything that might fail is unlikely to be considered. If your organisation has a history of grant funding then the transition to running a business will certainly entail a much higher degree of risk. There are many factors that can cause business failure within the private sector; and, these are equally as valid in the social enterprise sector. Some of the common reasons for failure are:

How are you currently funded?

Poor cashflow – might lead to loss of suppliers or inability to pay bills.

What are the strengths/weaknesses of your funding composition?

Significant changes in the market – could lead to customers buying from someone else.

What financial management and reporting systems do you have in place? How will they need to change to run a social enterprise?

Loss of key staff – with no succession planning in place your organisation might lack the key skills necessary to drive the business.

How have you developed and funded new projects in the past?

Poor financial management – will lead to problems such as unrealistic sales targets or higher cost of sales.

What investment do you require to start up a new social enterprise? What sources can you identify? What is your attitude towards loan finance? What is your experience of loan finance and repaying loans? Do you have the power to borrow? What do you currently do with surpluses? What policies do you have in terms of investing in business development? What type of relationship do you have with your bank?

In the course of developing your social enterprise, you will obviously aim to reduce these risks but they cannot be avoided altogether. For this reason, you should constantly review and reassess how your business is developing. We have found that it is advisable, in risk management terms, to invest a proportion of any surpluses into further business development or in accruing reserves. This will act as a cushion should you experience any unexpected drops in commercial income. Given the information that you should have gathered about how you run your organisation financially, and having gained some clarity about the ‘balance of aims’ within your organisation, you can now look your attitude to risk.

What are the cashflow implications of developing your business idea? Will you access any non-commercial income to run your enterprise? How?

34

35

Profile for Keith Murray

A Business Planning Guide for Social Enterprises  

The much loved Social Enterprise Planning Guide. Proving to be very popular. Brought to you by Forth Sector Development.

A Business Planning Guide for Social Enterprises  

The much loved Social Enterprise Planning Guide. Proving to be very popular. Brought to you by Forth Sector Development.

Profile for fs12pbl
Advertisement