Social Firms Information Kit

SoFA.

Social Firms Australia

© Social Firms Australia Limited and Social Ventures Australia Limited, 2005

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Introduction The SoFA Social Firms Information Kit provides background information on social firms, tools and suggestions on how your organisation can introduce this model of employment for people with a disability or other disadvantage. ‘Organisations like SoFA are helping to close the gap by supporting people who may not be able to make it to work everyday, or who may have faced stigma in the past because of their illness.’ John Thwaites, Deputy Premier of Victoria

This Social Firms Information Pack has been compiled with the professional expertise and advice of a range of specialists within the business, community and social sectors. It has been produced as a component of the Social Firms Development Project, conducted by SoFA in partnership with Social Ventures Australia, and with support from Westgate Community Initiatives Group and Social firms UK. SoFA’s ‘Social Firm Development Project’ was funded by the Department for Victorian Communities in 2005, as a key initiative of the Victorian Government’s A Fairer Victoria policy.

While every endeavour has been made to ensure that the information and materials contained in this kit are relevant and up to date at the time of printing, the contents contain general information only and are intended to be used as a guide and not to be regarded as advice for any particular organisation. Some of the information has been generously provided by a range of external parties, without charge. To the extent permitted by law, SoFA, SVA and their directors, officers and agents do not warrant the accuracy or completeness of any of the contents. You should make your own independent assessment prior to undertaking any project, and speak to SoFA to consider whether the contents are appropriate in light of your particular needs.

Version: 22/09/08

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Contents

i. Background page 4 ii. Overview page 5 iii. The Process – Social Firm Development page 6

STEP 1 Organisational Assessment page 7 STEP 2 Business Identification page 10

STEP 3a Screening Identified Businesses - Social screen page 14

STEP 3b Screening Identified Businesses - Commercial screen page 16 STEP 4 Feasibility Study page 19 STEP 5 Funding Mix page 20

STEP 6 Legal Status page 21 STEP 7 Evaluation page 22

STEP 8 Launching the Social Firm page 23

iv. Support for Social Firms page 24

v. Appendices page 25

vi. Contact Details page 29 vii. Donation Form page 30

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i. Background This information kit describes the stages involved in establishing a social firm. It is intended as a guide to assist organisations or individuals interested in setting up a social firm.

SoFA’s vision SoFA’s vision is of a society in which workplaces are accessible to people of all abilities, and in which everyone has the opportunity to secure fulfilling and durable employment.

Rationale and context Employment provides us not only with an income but also a sense of purpose, identity and connection with the wider community. There has always been a clear link between employment and positive mental health, with increasing evidence that unemployment is associated with increased rates of depression and anxiety disorders. There are approximately 150,000 Australians with a psychiatric disability. This group is the second largest group on the disability support pension, but one of the smallest in terms of a successful return to work. The unemployment rate for people with a psychiatric disability is very high at approximately 75%. Despite this there is considerable anecdotal evidence that approximately 70% of the population with a psychiatric disability would like to have at least part-time work. The opportunity to disclose support needs without the fear of stigma, and the quality of the support provided in the workplace, are critical to securing and keeping a job.

The social firm model Social firms allow for the modifications required to be built in to the design of the workplace, with an integrated workforce that promotes both the social and commercial goals of the business. A social firm’s reason for existing is to create employment for people with a disability. Workplace modifications in a social firm include opportunity to openly discuss the nature of specific needs and implementation of a support plan. Some other workplace modifications in a social firm include: • Flexible shifts, negotiated ‘time out’ or leave without pay (without fear of losing one’s position). • Opportunity to increase and decrease hours as required, and employment of backup staff or casuals to cover absenteeism. • Co-worker support and education. All staff would receive training in supportive practices.

SoFA. (Social Firms Australia Ltd) SoFA (Social Firms Australia) is a not-for-profit organisation committed to improving the employment outcomes of Australians living with a disability, particularly people with a mental illness. SoFA was founded in August of 2004 with the support of Westgate Community Initiatives Group (WCIG), Social Ventures Australia (SVA) and Social Firms UK (SFUK). With funding from the Department for Victorian Communities in 2005, SoFA commenced the development of a network of social firms. To date, SoFA has been working with over 20 organisations in Victoria interested in establishing social firms. SoFA has also received funding from the Reichstein Foundation for its Advocacy project; from the William Buckland Foundation and the Helen McPherson Smith Trust to continue its development of the social firms sector. In 2006 Perpetual Trustees funded SoFA’s development of the SoFA Workplace Modifications Infokit. There has also been corporate investment via SVA.

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ii. Overview The social firm: a definition A social firm is a not-for-profit business enterprise whose purpose is to create employment for people with a disability or serious disadvantage. The key characteristics of a social firm are: 1. An integrated workplace: recruits between 25% and 50% of employees with a disability or serious disadvantage. 2. Income streams – at least 50% of income is derived from its commercial activity. 3. A supportive work environment that:

• pays all workers at award/productivity-based rates.

• regardless of disability, provides the same work opportunities, rights and obligations to all employees.

• builds the modifications required for the employee with a disability into the design of the workplace.

Modifications required for employees in need of support are built into the design of the workplace. The development of an enterprise that is going to both provide employment to people experiencing disadvantage and be sustainable in the long term requires a significant investment of time and resources. There are many considerations and assessments to be made at the various stages of development.

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iii. The Process Social Firm Development

How the Social Firm Development Process works . . .

1. Organisational Assessment – SoFA works with organisations that are interested in setting up a social firm. This includes: o assessment of their capacity. o the skills and resources required; and assistance with the identification

of relevant sources and local opportunities.

2. Business Identification – identification of business opportunities (existing businesses for sale, replications of business or enterprises, franchise or licensed business models, procurement or start-ups). 3. Business Screening – assessment of the suitability of a business, or business idea as a social firm, using the: a) Social screen – workplace access and suitability assessment. b) Commercial screen – initial financial assessment. 4. Feasibility Study a) undertaking market research to assess viability, maturity and growth opportunities of the business. b) initial due diligence, and development of a basic business plan to assess the business’s potential. c) appointment of the ‘Deal Champion’ and or ‘Transaction Manager’. These are professionals in the field with business transactional skills, who can follow the process of negotiation through to the final settlement.

5. Funding Mix –Development of plan to determine which sectors will invest in the social firm and in what proportion. In order to secure funding, the business plan would need to be shown to potential funding sources.

DOTARS (Department of Transport and Regional Services) is an example of one possible government funding source.

6. Legal Status – confirmation of the appropriate legal structure for the social firm. 7. Evaluations:

o Statistical data – SFUK Dashboard performance assessment tool. o Quality of life - impact of a supportive workplace on the mental health of

employees with a psychiatric disability - in development in partnership with the Psychosocial Research Centre.

o Mental health literacy – increased awareness of mental health issues in the co-worker – in development in partnership with the Psychosocial Research Centre.

o SROI – Social Return on Investment adapted by SVA for use in social firms.

8. Launching the social firm.

o Launch logistics and roles. o Venue and catering. o Guests and guest speakers. o Registration. o Promotions

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

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Step1. Organisational assessment

Developing a sustainable social firm requires significant financial and human resources. Two tools to assist groups to assess their capacity to establish a social firm are the SoFA DIY Organisational Capacity Assessment and the Social Firms UK Values-based Checklist. 1. SoFA DIY (Do it yourself) Organisational Capacity Assessment SoFA has developed a DIY organisation capacity assessment tool which assists in identifying the set up of a social firm. 2. Social Firms UK Values-based Checklist by SFUK 2002 SFUK have developed a Values-Based Checklist which outlines the mission and values that a business must hold to be considered a social firm in the UK. The criteria are derived from the Enterprise, Employment and Empowerment values identified by the UK social firm sector in 2002. The full Checklist is detailed on the Social Firms UK website: www.socialfirms.co.uk

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

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DIY Organisational Capacity Assessment Tool: For each of the criteria, score the organisation one, two or three points according to the columns outlined. A high score suggests potential to develop a social firm.

criteria 3 2 1 score

1.Understanding of the model

There is a good understanding of the model at various levels of the organisation; SoFA has presented to all levels of staff on the model.

SoFA has given more than two presentations to the CEO and key management on social firms.

1 to 2 key members of staff have expressed interest in the social firm model and met with SoFA. !

2. Target population

More than 75% of the target population is people with a psychiatric disability.

More than 75% of the target population is people with a disability; and more than 50% have a psychiatric disability.

The majority of the target population do not have a psychiatric disability !

3. Mission and value alignment

More than 80% of published and demonstrable values align with SoFA values (promoting equality, employment and empowerment ).

50 to 80% of published and demonstrable values align with SoFA values of promoting employment, empowerment and equality.

Less than 50% of published and demonstrable values align with SoFA values. !

4. Strategic intent: why a social firm?

To create employment, empowerment and equality for people with a psychiatric disability.

To increase capacity to assist people with psychiatric disability back to work and generate additional income streams.

To generate additional income streams for the lead agency for promotion and profile raising. !

5. Board support The board has a good understanding of the social firm model. SoFA and SVA have met with the board at least Twice and the board is committed to the organisation developing a social firm. This intention is included in the lead agency’s strategic plan.

The board has some understanding of the social firm model. SoFA has met with the board at least once.

The board does not have a clear understanding of the social firm model. !

6. Financial resources

There are financial resources of at least $20,000 that can be allocated to employing dedicated staff and social firm administrative development.

There are financial resources of $5,000 to $20,000 that can be allocated to employing staff and social firm administrative development.

No financial resources have been allocated to employing dedicated staff and supporting social firm development administratively.

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7. Dedicated staff allocated

Project manager identified who will drive the social firm development in the lead agency with funding confirmed.

Project manager has been identified who will drive the social firm development within the lead agency with additional funding being sought.

Staff members and funding for this has not yet been identified. !

8. Entrepreneurial spirit

The organisation has successfully established and operated more than 2 enterprises or significant innovative long-term projects.

The organisation has successfully established one enterprise or significant innovative long-term project.

The organisation has not established and operated enterprises or significant innovative long-term projects.

! 9. Sector expertise The organisation has more than 5

years experience of supporting people with a psychiatric disability to secure employment.

The organisation has less than 5 years experience of supporting with people with a psychiatric disability to secure employment.

The organisation has very little or no experience of supporting people with a psychiatric disability . !

10. Business idea 3 to 5 credible business ideas have been identified as potential social firms.

1 to 3 credible business ideas have been identified as potential social firms.

No credible business ideas have been identified as potential social firms. !

11. Investment potential

Potential investors (including philanthropic trusts, private donors, government programs, etc) can be valued at over $100,000.

Potential investors (including philanthropic trusts, etc) can be valued at between $50,000 and $100,000.

Potential investors can be valued at less than $20,000. !

12. Capital Financial contribution of between $20 - 50,000 can be made towards the purchase or set up costs of a social firm.

Financial contribution of between $10 - 20,000 can be made towards the purchase or set up costs of a social firm.

No financial contribution can be made towards the purchase or set up costs of a social firm. !

14. Local business networks

The organisation has regular contact and good relationships with 1 or more business networks (eg. Rotary, local chamber of commerce, etc).

The organisation has regular contact and good relationships with networks (eg. Rotary, local chamber of commerce, etc);

The organisation has some or no contact with business networks. !

15. Health/ Employment/ Community.

Organisation is well connected with at least 5 other service providers.

Organisation is well connected with Between 2 - 5 other service providers..

Organisation has connections with less than 2 service providers. !

Total

36 to 45 READY

26 to 35 GETTING READY

0 to 25 NOT READY YET !

Your total score gives you an indication of how ready your organisation is to start the process of establishing a social firm.

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Step 2. Business identification

When searching for a business opportunity, one of the most challenging and yet most important aspects to consider is the business idea. It is important that you choose a sustainable business and yet there is no method that will guarantee success. It is important that the business idea is one that can be rigorously researched for suitability. For your business to succeed you must know your market. Statistics and demographic profiles help businesses understand the people, companies and organisations that make up their markets. It is important to know who these people are, how they behave, what products and services they want and how or where they want them delivered. Available statistical information: Resource information provided by government departments and industry groups includes The Commonwealth Department of Industry, Tourism and Resources (ITR), The Australian Taxation Office, The Council of Small Business Organisations of Australia (COSBOA), The FMRC Business Development Benchmarking Team Pty Ltd, and IBIS.

Strategies for identifying business ideas/ opportunities: 1. Business opportunities that come through existing networks: Local opportunities, discussions with focus groups generating start-up ideas, identified businesses and franchises for sale, conventional advertising sources. 2. The Business Search Engine: a pro-active, direct marketing approach, identifying existing business opportunities that meet both social and commercial

criteria and have sustainable results. If you are considering searching for a business to acquire, the ANZIC Codes of Industry classification may be of some assistance.

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

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5 Potential Business Set Up Opportunities

Bear in mind that it is important not to exclude businesses too readily. Keep an open mind, and prioritise the business’s suitability according to the social and commercial screens.

Business approach Advantages Disadvantages

1. START UP Setting up a business from scratch

• May be less upfront investment needed • New business generates energy and momentum in sector. • There are existing government grants to assist with start up of

enterprises.

• Can take a long time to establish, break even, scale up and therefore create significant employment.

• Untested in the market place and therefore may have more risk.

• Planning permits and zoning restrictions may further impede progress.

2. ACQUISITION Purchasing an existing business

• The business has a track record and place in the market. • With a trading history, there is greater access to conventional

commercial lenders. • Suitability as a social firm can be assessed before acquisition. • Start immediately as a social firm. • Assess the opportunities in the workplace and work culture.

• More upfront capital required. • Existing culture in the workplace may be difficult to

change/ modify. • Intellectual expertise and contacts may leave with

business owner.

3. FRANCHISE/LICENSING/ REPLICATION Purchasing a business structure and trading name eg. ‘Norman’s mowing’

• Business set up can be clearer. • Tried and tested model. • System to follow.

• Pre-existing culture. • Less flexibility with roles. • Can be expensive to purchase and usually has

ongoing fees payable. • Usually low margins. • Franchise has a fixed lifespan.

4. OUTSOURCING Being contracted to provide labour or parts to a larger business

• Large organisation, supportive structure. • Can be quick and easy to set up. • Known guaranteed contract.

• One powerful customer (risk if contract falls through). • Usually has limited range of roles.

5. SOCIAL TENDERING Eg. Local Government contracted work.

• Social tendering – hand tailored advantage. • Sympathetic customer. • Quick to implement.

• If there is only one customer, risk if contract terminated.

• Contract based eg. only 3 years.

COLLECT Business ideas,

Existing businesses Business Search engine

SCREEN Businesses using social and

commercial screens

SELECT Business that fits the criteria

outlined and progress to Feasibility Study

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Three approaches to business development: There are a number of different approaches to setting up a new business. The three main ways most people choose to get in to small business ownership are detailed below.

1. Start Up (setting up a business from scratch):! The nature of a business is determined by the products or services offered and the market served by the business. You can improve your potential to make profits if you understand the specific nature of your business. This knowledge will:

• make it easier for you to plan. • help you identify profitable market niches. • reduce the time spent researching new product acceptance. • increase your awareness of what are realistic expectations about the performance of your business. • enable you to spend your dollar more effectively by being more selective in your promotion programs.

Products or services offered:

• What products will you sell? • Which products will contribute most to your turnover? • Which products will contribute most to gross profit? • What is the status of each product’s life cycle? • Is it in an introductory, growth, maturity, or declining stage? • What competing products are available? • How will these products compare in terms of: a) price, b) customer awareness, c) terms of payment, d) method of distribution , e) profitability • What new products are coming into the market.

2. Acquisition: ! Flow chart of steps of business search engine for acquisition of an existing business

! For more info go to Business Victoria website: http://www.business.vic.gov.au/BUSVIC.458932/STANDARD//PC_50122.html ! for more info go to the Business Victoria website: http://www.business.vic.gov.au/BUSVIC.458932/STANDARD//PC_50122.html

1 Industry Types Create a database of existing business names and addresses in your selected industry areas.

2 Contact Mail out a flier to businesses in the database, letting them know that you are looking for businesses

When a business gets back in touch, ask them to complete a basic questionnaire

For businesses that rate highly, go on to the Social and Commercial Screens

3 Questionnaires Gather basic Information about potential businesses from returned questionnaires.

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The immediate benefit of buying an existing business is that it is already in operation and so will provide you with a history of trading activities and an immediate cash flow. It also provides information on the range of work opportunities that would be available to people with a disability. However, a common problem is that the departure of the owner may adversely affect the business and so the current takings cannot be guaranteed. With an existing business there will always be surprises. You may never know the real reason why the business is up for sale, but you can reduce the potential for surprises by spending time in the business for a time prior to sale to see how staff and clients really view the business. There will always be unknowns: new competitors will emerge and the economy will fluctuate. However, a thorough assessment of the risks and opportunities will help you to make the right choice. There is a sense of security that comes with buying an existing business as you can see what you are getting for your money, however, that sense of security comes with a price tag that may not apply when you start a new business.

3. Franchising/ licensing/ replication (Buying a franchise or copying a model) ! If you want to run your own business but still benefit from the security and experience of a large organisation, a franchise could be for you. Franchising involves one party (the franchisor) granting a license to another party (the franchisee), entitling them to trade under the name of the franchisor, using materials and training supplied by the franchisor for a certain time period, in return for a fee. This fee may relate to the initial capital investment, percentage of trading/sales, training, advertising and/or royalties. Franchising is essentially a marketing concept, a way of delivering products and services to the marketplace under the franchisor’s trade mark or other commercial symbol for the duration of the franchise or licence. But like all small businesses, franchises are not without risk and you should carefully evaluate a franchise before paying for the license and seek your own independent advice before proceeding. As a prospective franchisee, you should ensure that the estimated profits of the franchise provide a return on the invested capital, after payment of royalties and franchise fees with enough for the repayments of any loan and a fair income for the work you perform in running the business. You should ensure the profits cover ongoing fees and costs associated with the franchise keeping in mind that a franchise usually has a limited lifespan.

! for more info go to the Business Victoria website: http://www.business.vic.gov.au/BUSVIC.458932/STANDARD//PC_50122.html

Business Search Word of mouth Mail out

Enquiry Questionnaire

Social Screen Site Visit

Social Screen Business

summary

Business Screen Site Visit / Analysis

of Financials. Analysis of market.

Acquisition Process SROI evaluation

Due Diligence Deal structuring Price negotiation

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Step 3a. Social screen

Existing business social screen This screen should be used as a quick method of assessing the business’s suitability to be a social firm. For each of the four initial criteria, score the existing business one, two or three points according to the columns as outlined. A high score suggests potential.

Criteria 3 2 1 Score

1. Potential number of employees

Potential to convert existing workforce to between 10 and 25 employees including part--time and casual.

Potential to convert existing workforce to between 5 and 10 employees including part-time and casual.

Less than 5 employees including part-time and casual (little or no potential to increase workforce) !

2. Range of roles More than 3 levels of responsibility and types of roles (eg. unskilled, semi-skilled and skilled).

3 levels of responsibility and types of roles (eg. unskilled, semi-skilled and skilled.

Less than 3 levels of responsibility and types of roles (eg. unskilled, semi-skilled and skilled). !

3.Variations in work pressure

More than 3 variations in work pressure, ranging from very low stress to more demanding, time-pressured activities.

2 to 3 variations in work pressure, ranging from very low stress to more demanding, time-pressured activities.

No variation in work pressure, all low stress or constantly demanding and time-pressured activities. !

4. Existing example

More than 1 existing example of a successful social firm in this business type overseas; or an existing example of a best- practice social enterprise in this business type in Australia.

An existing example of a successful social firm in this business type overseas; or an existing example of a social enterprise in this business type in Australia.

No existing example of a successful social firm in this business type overseas; and no existing example of a successful social enterprise in this business type in Australia

!

5. Existing Workplace culture

The workplace presents as a friendly, accessible and positive environment.

The workplace presents as reasonably engaging and accessible.

The workplace has a hostile and unfriendly atmosphere !

Initial score 12 to 15 VERY SUITABLE

8 to 12 POTENTIALLY SUITABLE

7 or less UNSUITABLE !

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

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Detailed social screen: This more detailed screen of an existing business should be based on a site visit and discussions with the owner, manager and employees. Gather as much information as possible about the type of work involved and how the business operates, and changes could realistically be made. Review the initial screen criteria, based on this further investigation, then complete the screen below.

Criteria 3 2 1 score

5. Social contact with peers

Teams of 3 or more employees with some frequent co-worker support. Individual work also available.

Work flow involves teams of 2 employees with some, individual work.

Work flow involves little teamwork with predominantly isolated, individual work. !

6. Stress in the work environment

Regular, periodic variations of stress in the work environment (eg. no loud machinery) - less than 30% of time.

Occasional variations of stress in the work environment – between 30%and 70% of the time.

Very little variations of stress in the work environment - over 70% of the time. !

7. Worker support More than 50% of the roles are easily transferable.

25% to 50% of the roles are easily transferable

Less than 25% of the roles are easily transferable. !

8. Co-worker support

More than 50% of the roles allow for co- worker support and interaction.

25% to 50% of the roles allow for co- worker support and interaction.

Less than 25% of the roles allow for co-worker support and interaction !

9. Training A range of opportunities for accredited training.

Some accredited training opportunities. No training opportunities. !

10. Customer contact A combination of customer contact and behind-the-scenes work.

Frequent customer contact or little customer contact.

More than 70% customer contact or less than 20% customer contact. !

11. Other employers Natural links and job pathways to more than 3 types of work in the business.

Some links and job pathways to other workplaces. Few links and job pathways to other workplaces. !

12. Autonomous legal structure

Capacity to be a separate not-for-profit legal entity with independent stakeholders, Including employee representation.

Incubated subsidiary or cost centre of a not- for-profit organisation with a clear path to independence

Wholly or partly owned subsidiary or cost centre of a not-for-profit organisation; or for-profit entity

! 13. Access to public transport

Easy access to more than one form of Public transport

Easy access to one form of public transport

No easy access to public transport !

Total score (Both screens)

28 to 36 VERY SUITABLE

18 to 27 POTENTIALLY SUITABLE

17 or less UNSUITABLE !

As you continue to research the business, it is recommended that you review your scoring after any significant new information is discovered.

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Step 3b. Commercial screen Part A - Initial commercial screening Basic information should be gathered for an initial commercial screen, to assist in determining a business’s commercial suitability. Business details:

Business Name

Business Address

Business owner’s contact details Name: Phone:

Business type (eg. retail vs wholesale)

Describe your business:

Ownership structure: (! Tick the appropriate box)

Company Sole trader Partnership Other (please specify)

Number of employees (including owner/manager if applicable)

Full-time Part-time Casual

How does your business operate?

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Financial overview: Sales (! Tick the box that best approximates annual turnover.)

Less than $500k $1m to $2m $2m to $5m

More than $5m

Net profit after owner’s wages (! Tick the box that best approximates Net Profit as a percentage of annual sales.)

0% to 5%

5% to 10% More than 10%

What is the estimated value of Stock ($)

What is the estimated value of Plant and equipment

What are your reasons for selling?

Are there any restrictions or requirements on selling the business?

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Part B - Detailed commercial screening Based on a site visit and in depth information gathering. Having completed the initial step in business screening you would then proceed to the second stage, the first site visit. Some of the specific information usually required to start making a more exhaustive commercial assessment includes the following.

FINANCIAL RECORDS of at least the last 3 years

• Tax returns • Profit and loss statements • Balance sheets

INFORMATION ABOUT ASSETS

• Property • Land • Stock • Equipment • Intellectual property

COMPETITORS • Who are the competitors in that industry? How many are there? What is their market share? • proximity and size in relation to your business.

PAYROLL • Who gets paid? • What do they do? • How many employees are there? Fulltime, part-time, casual

CUSTOMERS • Who are they? Talk to them • Market Trends • Contracts

Based on the information gathered you will be able to make an assessment as to whether the business is worth pursuing. You should obtain your own independent advice to assess the viability of any opportunity and to assess the business’s value. We also recommend involving people from different levels in your organisation, including your board, in the decision making process. ‘How to identify a sustainable business for a social firm’ by Roger Pitt 2005 • Is the business easily understood? ie. products, services, technologies involved. • Is the price known? Don’t waste time with a vendor who is unsure of their asking price. • Are the key members of the management staying? • Is the market segment growing? A growing market is very forgiving. Be aware of customers and competition. • How will the products or services be marketed? Pricing and margins for these. • Are there any special arrangements, ie. dependence on third parties? • Does the strategy of the business make sense? What is the ultimate goal and the plan to get there? • Will the business provide an adequate return on investment (ROI)? How much is the investment? What is the current net profit after tax (NPAT)? • What does the last 3 years balance sheets, profit and loss and cash flow statements reveal? Look for favourable trends. Summary A good business is readily understood and has sufficient key people remaining or they can be readily hired. The demand for product/ service shows reasonable growth, the strategy is sound and the relationship to investment is such that the return on investment is satisfactory.

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Step 4. Feasibility Study

Once you have chosen your business, you will need to expand your research further to gather vital information for a feasibility study. This process involves two important steps: 1.Due Diligence:

• The creation of a basic business plan. Most businesses which succeed have carefully planned and researched their proposed business venture. Every business plan will be different. • Check the legal status of the business for ownership of stock and assets, any contracts the business may be under, etc.

2. Market Research: research is needed into: • The industry. • Competitors. • Markets. • Customers. • A cash flow analysis of the first 12 months and subsequent 3 years of trading. • S.W.O.T. analysis (Strengths, Weaknesses, Opportunities and Threats).

Refer Social Firms Acquisition Kit.

Selected Business

Successfully screened

Feasibility Study 1. Due Diligence 2. Market Research

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

20

Step 5. Funding mix

Capacity to secure funding Outcomes Assets and Start-up costs

It is important that the scale of business that you are looking at matches your capacity to source funding for that venture. A balance must be achieved between the ability to secure funding with the outcomes, assets and start-up costs. Exploring loans, as well as grants and donations, is relevant to consider and standard business practice when buying a business. Most businesses are in fact started or bought with some component of loan finance. Example breakdown of investment in social firm:

a. 30% Bank loan. b. 10% Group or organisation’s contribution. c. 30% Government grants or trusts – eg. DOTARS. d. 30% Local government or private sector/ corporate partnerships.

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

21

Step 6. Legal status

SoFA encourages any group or individual setting up a social firm to seek out their own independent professional legal advice. The following overview is an excerpt of the papers set out in the appendix prepared by Alice Macdougall, Special Counsel, Freehills. The two most common structures for charitable organisations are: (a) Incorporated association

Many locally focussed not-for-profits are operated by incorporated associations which are State-based entities registered with State governments usually though the Consumer Affairs or Fair Trading departments. Incorporated associations are relatively cheap and easy to set up but are not intended for operating a business. The Victorian Act provides that an incorporated association may not trade unless its predominant purpose is charitable. While a social firm’s predominant purpose is charitable its predominant activity will be operating a business. This may create difficulties in on going registration as an incorporated association.

(b) Public company limited by guarantee? Many charitable organisations are public companies limited by guarantee. We recommend this structure as appropriate for operating a social firm with tax concessions. These companies are not-for–profit but there is no restriction on carrying on a business in any state or through out Australia. You will need to comply with the requirements of ASIC and the Corporations Act and this will include an appointment of an auditor and an annual audit. Small businesses operated by a Pty. Lltd. company do not need to have an audit but all public companies irrespective of size must.

As this is a highly specialised area, please refer to the appendices at the end of the info kit for in depth information. Appendix: ‘Legal structure options and governance for social firms’ by Alice Macdougall, Special Counsel, Freehills 2005

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

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Step 7. Evaluation

It is advisable to begin the process of evaluation from day one so that you can assess clearly the great progress and development your social firm has been making. Evaluation: • Statistical surplus – SFUK Dashboard performance assessment tool. • Quality of life of employees – impact of a supportive workplace on the mental health of employees. • Mental Health Literacy – reduced stigma re mental illness in social firms. • SROI – Social Return on Investment.

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

23

Step 8. Launching the social firm

The social firm launch check list includes: • Launch logistics.

• Launch venue and catering.

• Guests numbers and list.

• Registration.

• Guest speakers.

• Sponsorship.

Step 1. Organisational Assessment

Step 2.

Business

Identification

Step 8.

Launching

The Social Firm

Step 7.

Evaluation

Step 6.

Legal

Status

Step 5.

Funding

Mix

Step 4.

Feasibility

Study

Step 3a and 3b.

Screening Identified

Businesses

Congratulations and all the best

for the new social firm.

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iv. Support for social firms Using the Social Firm Development Process, SoFA can offer assistance with the development of a social firm at any of these stages.

Contact us on (03) 9445 0373 or info@socialfirms.org.au. Once the social firm is established, SoFA will be able to offer some ongoing support. This includes:

• Access to resources and tools. • Network meetings • Evaluation – including SFUK’s ‘dashboard’.

New Resources SoFA has a Workplace Modifications Info kit, funded by Perpetual Trustees, for use in social firms and the mainstream workplace. SVA’s Social Return on Investment tool (SROI), adapted for use in social firms with assistance from WCIG, demonstrating the benefits of social firms to a range of stakeholders, potential investors and supporters.

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v. Appendix 1:

LEGAL STRUCTURE, GOVERNANCE AND TAX STATUS OF SOCIAL FIRMS Or: You want to set up a social firm, you’ve found the business – now what do you do?

1. Do I need professional advice?

Yes. Before you purchase a business you will need it evaluated and checked by both an accountant and a solicitor. Starting a new business should also be evaluated for sustainability by an accountant. Establishing a social firm may come within a legal or accounting firm’s pro bono program – it is worth asking! Pro bono lawyers can be referred by Public Interest Law Clearing House (PILCH): http://www.pilch.org.au/

2. What legal structure will own the business?

(a) Pty Ltd company? Most small businesses (and many medium and large businesses) are owned by a proprietary limited company – a company with the letters Pty Ltd after its name. These businesses are ‘for profit’ and are run to generate profits which are distributed to the shareholders. Social firms are run from a different motivation and while it may be possible for a Pty Ltd company to operate a social firm, it may send the wrong message and it will be more complicated to make the necessary amendments to its constitution to obtain tax concessions.

Most advisers not familiar with social firms or the not-for-profit sector will want to recommend and use a Pty Ltd company which is why it is good for you to know a little about the options and you can give this paper to your adviser!

(b) incorporated association? Many locally focussed not-for-profits are operated by incorporated associations which are State-based entities registered with State governments usually though the Consumer Affairs or Fair Trading departments. Incorporated associations are relatively cheap and easy to set up but are not intended for operating a business. The Victorian Act provides that an incorporated association may not trade unless its predominant purpose is charitable. While a social firm’s predominant purpose is charitable its predominant activity will be operating a business. This may create difficulties in on going registration as an incorporated association.

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(c) public company limited by guarantee? Many charitable organisations are public companies limited by guarantee. We recommend this structure as appropriate for operating a social firm with tax concessions. These companies are not-for–profit but there is no restriction on carrying on a business in any state or through out Australia. You will need to comply with the requirements of ASIC and the Corporations Act and this will include an appointment of an auditor and an annual audit. Small businesses operated by a Pty. Lltd. company do not need to have an audit but all public companies irrespective of size must. 3. What do I need to set up a company limited by guarantee? You will need:

a. at least 3 directors, though we recommend between 5 and 10. The directors need to represent the public, which means they cannot all be related, in order to be eligible for tax concessions;

b. one company secretary – which can be one of the directors or another person; c. at least one member. Often in charitable companies, the members are the same as the directors for ease of administration;

d. a constitution signed by the initial members. If you want to be eligible for tax concessions the constitution will need to comply with the requirements of the ATO;

e. a registered address, which cannot be a PO address and must be open at certain times of the day (so generally not a home address unless you are operating the business from home);

f. an auditor who needs to be appointed within one month of incorporation.

Once incorporated you will need to apply for an ABN. On going compliance requires you to notify ASIC of any changes to the directors or company secretary. Each year you will need to prepare annual accounts which are audited and send an annual statement to ASIC. The audited annual accounts are submitted to the members at the annual general meeting, and lodged with ASIC.

4. Are there tax concessions available? A social firm operated as a not-for-profit organisation is likely to be eligible for tax concessions from the ATO. This will be decided on a case by case basis. There are 2 levels of tax concession:

(a) Income tax exemption

A social firm will be eligible for income tax exemption if it is charitable. To be charitable:

• the purposes need to be for the public benefit and not principally about operating a business for the generation of profits; and • there needs to be specific clauses in the constitution to show the company operates on a not-for-profit basis. This means that any profits generated are put back in to the business and are not distributed to the members or the directors. If the ATO agrees the company is charitable and not-for–profit it will endorse it as a Tax Concession Charity (TCC).

(b) Tax deductibility/FBT exemption A social firm may also be eligible to be endorsed as a public benevolent institution (PBI) which would entitle it to receive tax deductible gifts, grants from philanthropic foundations restricted to giving to deductible gift recipients (DGRs) and a capped FBT exemption. A PBI is a charitable institution with the dominant purpose of providing direct relief of suffering, distress and helplessness for the benefit of the community. To be eligible the constitution also needs to contain a ‘gift fund’ clause and

27

provide that on a winding up any surplus will go to another PBI. More information on the clauses required can be obtained from SoFA or from the ATO website: http://ato.gov.au/nonprofit/default.asp

(c) State taxes Being charitable and a PBI will also provide exemptions for payroll tax and stamp duties and may provide exemptions from other state taxes. To be eligible for both tax concessions what do the objects need to be? The objects are crucial for eligibility for the tax concessions, particularly for endorsement as a PBI. We suggest that the objects of all social firms will be along the lines of: “to provide direct relief of suffering, distress and helplessness experienced by those with physical or mental disabilities, by providing supported training and employment opportunities within an operating business with ideally between 25% and 50% of the staff employed being people with physical or mental disabilities”. It is anticipated that in order for a business to call itself a social firm, it will need to comply with standards and guidelines recommended by SoFA which will require: (a) training placements and supported employment opportunities for people with mental or physical disabilities;

(b) demonstration of appropriate and flexible models of work to support the long term employment of people with mental or physical disabilities; (c) arrangements for supervision to ensure that appropriate levels of support and training are provided and that staff with mental or physical disabilities have the opportunity to develop within their roles, and assume roles of responsibility in line with their capabilities. The purposes of the business in maintaining its operations and sourcing new work will not be for profit making but for ensuring employment and training opportunities for people with mental or physical disabilities.

What does this mean in carrying on the business?

Having objects like this and maintaining eligibility for the tax concessions means that the directors will need to ensure the business is run at all times in furtherance of the objects. The directors will need to balance this to ensure that at all times the business is able to pay its debts and the business is offering supportive employment and training so as to provide relief to those with mental or physical disabilities. If the company is at any time not conducting the business in compliance with the objects it is under an obligation in the Income Tax Assessment Act 1997 to notify the ATO. The ATO strictly interprets the requirements relating to PBIs and more information can be found on the ATO website.

Alice Macdougall

Freehills November 2005

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Appendix 2: Launching the social firm 1. Launch logistics – things to think about.

• Set launch date. • Goals for the event: what is to be achieved, what ‘tone’ is to be set. • Prepare a launch program /Create Running Sheet/Order of proceedings

(start/finish times). • Design invitation and set RSVP date. Name Tags. • Management of Print Mailing Lists. Mail Out. Guest Speaker’s

Handouts. • Organisational Contact list - responsibility/special logistic

requirements and contact phone numbers for all parties

• Public Relations. Thank you letters Debrief.

2. Additional roles and considerations. • Central co-ordinator of the event. • Media – check that the speaker with mental illness is happy to

disclose to media, be photographed and check that lead agency has a consent form.

• Support person and backup for speaker with psychiatric disability. • Documentation – video/ photography/ audio. • Cleaning up team – eg. Cleanable. 3. Venue and catering • Source and contract Venue. • Manage Venue. • Hosting staff. • Manage AV requirements/sound at Venue. • Catering Liaison. • Entertainment/Music/Performers.

4. Guests – vital information • Guest list - Number in Attendance. • Industry Types represented. • Audience Age - if significant to demographic and industry. • Audience male/female – if significant to demographic and industry. • Dignitaries/ VIPs/ honoured Guests. • Accommodation/Flights (if required).

5. Registration • Welcoming party. • Establishing registration system (on line or manual). • Coordinate on-the day registration. • Monitoring registration. • Administration of registration. • Correspondence with registrants.

6. Guest Speakers

• Source guest speakers. • Engage an MC. • Liase and coordinate guest speaker requirements/travel. • Order of speakers. • Content of speakers’ talks and time frames. • Acknowledgements of support – verbal. • Supporters logos and banners – visual signage.

7. Promotions

• Management of design of promotional materials ie show bags.. • Approach target list of sponsors. • Manage sponsor expectations.

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vi. Contact details

SoFA. (Social Firms Australia Ltd)

Website www.socialfirms.org.au

Email info@socialfirms.org.au

Telephone 03 9445 0373

Fax 03 9445 0375

Post Suite 20/288 Brunswick St. Fitzroy VIC 3065

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vi. Donation form

Yes I would like to help…

My Cheque for $............................... made payable to ‘Social Firms Australia’ is enclosed.

Cash Deposits or direct debits can be made to: Macaulay Community Credit Co-operative BSB: 803 223 / Account number 5839 Account Name: Social Firms Australia

Title Name

Address

Suburb State postcode

Telephone ( ) email Thank you, Please return to: SoFA Suite 20/288 Brunswick St. Fitzroy VIC 3065

Donations of more than $2 are tax-deductible ABN 90 110 698 489