Social Enterprise company attracts facilities from TAEFL group03.08.2015

Company attracts facilities from TAEFL group

The Big Society was conceived back in 2010 as a broad canvas on which charities, not-for-profit enterprises and individual volunteers would work alongside central and local government to deliver a spectrum of services into the community.

The approach was to develop that loose structure into a more formalised arrangement. Turning the idealised model into reality across a spectrum of services proved more difficult to implement than had been envisaged, however.

It has often relied on Third Sector organisations bidding for contracts to deliver services on terms which could prove to be less than ideal for the contracting party. Payment by results, for example in the placement of workers with physical or mental issues, was a formula which operated in favour of bodies keen to minimise their financial outlay where there was no certainty that results would be achieved. The same formula, however, would penalise ‘delivery’ organisations which were applying their best endeavours but where the targets proved impossible to achieve because of factors beyond their control.

Third Sector face same challenges as commercial organisations

What this experiment has identified is that the organisations prepared to enter into contracts with the public sector should manage expectations and not jeopardise otherwise successful operations. They have to run as efficient businesses appropriate to their scale: some charities have an annual turnover running into several millions of pounds, while others are micro businesses.

Even though these businesses are not seeking to make profit for shareholders, they have to face the same challenges as their private sector counterparts. They need competent management and sound administration for a start. And they need working capital to pay wages and other necessary expenditure before the commissioning parties settle their invoices. Most of these enterprises, particularly the micro operations, fall beneath the radar of the traditional financial institutions and do not meet the normal criteria for bank lending.

Recognising the commercial reality that such enterprises face in meeting their valuable social objectives, the Trade & Export Finance group of companies recently became involved with a social enterprise in the South Midlands. TAEFL understands the constraints under which such organisations operate, having established a relationship earlier in 2015 with Complete Kidz, a Community Interest Company.

The enterprise had been established to fill a niche in the employment sector which was not being addressed successfully either by mainstream employers or recruitment agencies. In this instance, the objective is to support those in the catchment area with learning difficulties or psychological issues. The company is an increasingly diversified business that runs training projects and workshops. It has created retail opportunities and socially responsible activities that improve the lives of those with whom it works.

Grant funding has been the traditional source of finance for this kind of organisation. The enterprise runs a programme supported by the European Social Fund designed to prepare those passing through it for employment. But the founders were keen to adopt a business model that would generate much of its revenue through trading which could support directly what they describe as ‘marginalised individuals, creative & skilled trades people’.

Ongoing practical support is provided through operating a property clearance business. This brings local young people, older disabled adults and those with long term unemployment issues into a commercial working environment. The businesses provide quality gifts, collectibles and hand-crafted items, along with the associated skill sets.

Experience of working with Social Enterprises turned to advantage

UK EXIM Finance – one of the specialist finance companies within TAEFL – felt that it could assist this social enterprise. Having conducted its arm’s length analysis of the organisation and taken appropriate security, it is providing working capital through what is known as a Purchase Simple agreement.

Under that arrangement, UK EXIM Finance contracts to finance purchases up to an agreed maximum against the value of invoices which fall due from customers of the social enterprise in question. The aim is twofold. The £25,000 of working capital availability will allow the company to expand its contract gardening services, for example, knowing that it will have the funds to pay wages and its own suppliers when these fall due. As a result, it can provide further employment opportunities, training and support for the groups within Society who will benefit most. These clients have undoubted strengths which the social enterprise can help realise.

The other, less obvious benefit is that the company’s management will need to spend less of their time negotiating the bureaucratic minefield that comes as part of the grant funding application which they will have to complete less frequently.

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