Do’s and don’ts of trading for social enterprises & charities | Good Finance

Do’s and don’ts of trading for social enterprises & charities

Blog | 31 July 2018

It’s often pretty darn expensive to help people in need or tackle environmental issues, as well you know. Trouble is, the grants won’t keep coming forever, donations to charities are dropping, and public-sector funding is as elusive as an agreed deal on Brexit.

It’s little wonder that social enterprises and charities turn to trade – in other words, selling stuff to bring in money. This ‘earned income’ accounts for just over half of the civil society sector’s income, according to NCVO’s Civil Society Almanac 2018.

Developing your trading brings a bounty of benefits, beyond just cold, hard, unrestricted cash. It coaxes you into thinking more entrepreneurially and exploring new opportunities, and it can guide you towards taking on social investment. (After all, no social investor is going to loan you money unless you have a way to pay it back.)

So how should you go about developing your trading?

1. Don’t leave your team and board behind

Starting to sell goods or services requires a shift in operations and mind-sets. You need the people around you to get behind this – and you definitely need their input to develop viable ideas for trading. What experience do your team and board already have that could help? Explain the potential you see in trading, but also create space for your team to raise concerns.

2. Do assess strengths and weaknesses

Developing a trading model shouldn’t feel like a radical departure from what you do now. Work with your team to identify what your organisation is best at already, then explore how you could sell similar services or products in new places. Who is likely to pay for what you have to sell?

If you provide counselling services for free to those in need, could you subsidise by charging people on high incomes? Could you sell your expertise as consultancy? Could you co-create products with your beneficiaries to sell? Try not to be lured by ideas that none of you have experience in, unless you’re willing to risk significant upfront investment or take on extra staff.

3. Don’t rely on turning your beneficiaries into customers

It might be that some of the people you support can afford to pay for what you do, and you’re missing an opportunity. But you certainly don’t want to start charging your beneficiaries for things they can’t afford. There’s only one way to tackle this one: talk to your beneficiaries, as much as possible, to determine whether or not it’s fair to charge them. You might consider a sliding scale of payment, so that some people you work with subside others on lower incomes.

4. Do talk to an accountant

Getting professional advice on how to manage different income streams is common-sense. Controlling cash-flow and forecasting income from sales is a very different game from, say, relying on grants. Talking to an accountant is an absolute must for charities, as you may need to start paying tax if you earn above a certain amount of income that is not from primary-purpose trading. (You might even consider setting up a trading subsidiary.)

Sophie Hobson picture of a quote

5. Don’t underestimate the opportunity cost

Developing products and services, selling them, managing the income they generate, honing your model – this all takes time. So if you pursue this new trading model, who will need to be involved? What will need to be sacrificed to create the time it takes? Can you afford to take your eye off other balls to pursue this one?

6. Do get support

Not had much experience of selling and business development before? Then it’s time to talk to your network for advice and consider specific training. (Your team might also have previous sales experience that you can draw on.)

Try places like the Directory of Social Change for training, KnowHow Non-Profit for advice, or mentoring schemes like those offered by Business in the Community’s Arc or Expert Impact. UnLtd offers training and mentoring through some of their awards, and at the School for Social Entrepreneurs we offer learning programmes and short courses for charity leaders and social entrepreneurs, as well as Match Trading grants, specifically designed to incentivise trading. Resources like BPlans can help you develop a clear business plan.

7. Don’t expect people to buy from you just because you’re social

When it comes to researching the competition, look beyond just the social-sector providers in your space. Are there other private-sector companies and brands trying to reach your target customer with similar products or services?

Sadly, most people won’t buy from you just because you are more ethical than the alternatives in the marketplace. So make sure you have a unique selling point compared with what’s already out there - like offering better quality, more tailored services, friendlier customer service, or a new angle on an existing product.

8. Do make best, middle and worst-case forecasts, and set targets

Hope is a great trait. But not in the sales game, where it pays to be pessimistic. You should not put your organisation in a position where it will rely on income that may never materialise. Avoid nasty cash-flow shocks by drawing up best, middle and worst-case forecasts for your income from trading. That way, you can safeguard against the worst-case. (There’s loads of advice online about how to forecast sales, like this article.)

But set targets based on the best case. Having achievable goals gives everyone a focus. It’s normal to adjust targets further down the line if they turn out to be off the mark - which is likely!

9. Don’t put all your eggs in one basket

Don’t over-invest in one massive idea if you’ve done no piloting to prove it will work. Start small, try different things out, then orientate your plans towards what people are paying for. Think lean start-up! And remember that the more you invest up-front, the more you’ll need to sell to see a return on investment.

10. Do embrace failure and keep learning

We’ll level with you: not everything will go to plan, however meticulously you think you’ve researched your market. You’re evolving from impact-creator to revenue-creator, and that requires a shift in mindset. You need to accept that some ideas for earning income will fail. Dust yourself off and embrace the failure as an essential part of becoming more entrepreneurial. Then go back to number nine on this list: start small with a new idea, and see if this one works better. Good luck!

By Sophie Hobson, Head of Communications at the School for Social Entrepreneurs. Follow her @SchSocEnt and @sophiehobson.

Last updated
1 August 2018