The benefits of starting with a trading income as a social enterprise

Too many social enterprises start their business by applying and eventually securing grant funding. Some also try crowdfunding or asking for donations and sponsorship. I’m not opposed to any of these methods of generating income per se, however I do think there’s an issue if this is the only way new social enterprises think about how to generate income and don’t have an income strategy or business plan to generate the income they need on a sustainable basis.

In my experience this is one of the main reasons’ social enterprises struggle to:

Get started
Gain momentum
Scale their impact and influence
Deliver the impact they were really set up to do

….they don’t know where their money is coming from, from one month or quarter to the next. They operating on a shoestring, without any really security.

This is risky business for them and fatal for the whole social enterprise movement.

If we don’t focus on building sustainable businesses, we won’t demonstrate this is the way business should be done and the status quo will remain.

Taking responsibility to set up and grow a sustainable social businesses is more than just about you and your business, it’s about the survival of the whole sector.

Let me reiterate I don’t think you shouldn’t apply for grant funding, set up a crowdfunding campaign, look for social investment, I think these are all great ways to get started and secure seed-funding or pilot your idea. But they are not long-term solutions to sustaining your business, even securing social investment requires you to have a business model that demonstrates how you plan to generate trading income in the long term.

Your business can have a diversity of income streams and this may be preferable for many, however the most successful and sustainable social enterprises have strong business models for selling products and services that people want and need, at prices that generate a profit and can be reinvested back in to the business or the social and environmental mission.

Grant funding doesn’t allow you to generate a profit.

Crowdfunding is usually based on a full-cost recovery model, or to provide seed-funding only.

Sponsorship and donations are usually only small contributions to a larger amount you need.

And social investment requires you to have a trading income and profit.

By definition of a social enterprise, none of these are therefore long-term viable ways to generate the income you need or the profit you require to “reinvest back in to” your social or environmental mission.

The benefits of starting with a trading income are:

You’ve thought about what you do in relation to customer needs, not just your beneficiaries’ needs
You’ve thought about who your customers and clients might be, and how you could reach them
You’ve done a financial plan (aka budget) for how much you think it will cost to deliver what you want to do and therefore know how much income you need to bring in each month, quarter or year
You’ve considered the value of your products or services to customers & clients, and worked out the prices based on the cost, value and profit you need to make
You’ve thought through the different options for getting your products / services to market and generating sales
You can test out what works and what doesn’t and pivot accordingly
You have freedom to generate the income your want and need without being restricted by funders priorities or timescales
You know how much you need to sell to generate a profit
You can plan for the future, based on past sales
You can look at other options such as grant funding, donations, sponsorship, investment and loans as a way to add value, top-up your income during challenging times, provide seed-funding for new ideas or pilot new initiatives, or invest in new infrastructure and scale.