The importance of being earners

The mainstreaming of entrepreneurist approaches to income generation in the UK voluntary sector

Karl Wilding & Nick Wilkie, NCVO

Les Hems, Institute for Philanthropy

Contact: karl.wilding@ncvo-vol.org.uk

Structure 4s

• Context

• Questions for policy and practice

• The income mix: questions of how and what

• Benchmarking activities: methodology

• Earned income & loan finance: evidence of entrepreneurism

• Learning

Context: the VCS 4s3• Mainstreaming of the Voluntary and Community Sector

• Massive growth in resources

• Marketisation and professionalisation

• Concurrent decline in voluntarism (time and money)

• Sustainability & diversification: the end of the rainbow?

Context: social enterprise 4s3• Blurring of the boundaries: voluntary; private; public

• Increasing interest in social enterprise, new mutualism

• Emergence of a distinct social enterprise sector and infrastructure

Questions for policy & practice 4s3• Are traditional VCOs potential engines of economic

development?

• If so, is such activity at best marginal?

• Are entrepreneurist approaches widely embedded?

• What examples of good practice exist?

• What, if any, learning for policy and practice can we take forward?

The changing VS economy 4s3

requires subsidy makes money

on mission

off mission

Mission and money options

majority activity

stay out! proceed with caution

prime target

How?

What?

• Productproducing essential, social or environmental goods and services where they didn’t exist before (childcare, recycling);

• Processways of working which prioritise a social element (worker co-operatives, social firms, fair trade)

• Profittrading in order to cross-subsidise social or environmental goods or services

How?

product + market =

1. Unrelated Trading

2. Core Contracting

3. Cost Recovery

4. Social Firms

5. Core Related Trading

Methodological overview

• Survey of ‘general charities’, based upon the charity commission register

• Use charity accounts as source data• Collect data on income, expenditure, assets,

liabilities, paid workforce• Gross up to known UK populations

Source data: charity accounts

• Increasingly accessible, cheap data • Few or no compliance costs. • Very rich data: 2 years (00/01 & 01/02)• Audited financial data (income, current and capital

expenditure, balance sheet, workforce)• Accruals vs R&Ps creates some issues

Example accounts

Sampling strategy

• Stratification by size (income) and English region (postcode of correspondent)

• Charity Commission register much improved• 9x5, 45 cell sample matrix• 3,350 charities covered by the sample

Sample summary

No Inc Data

Zero Inc £1-£10k £10-£100k £100k-£1m £1m-£10m £10m+

Total sample 0 0 396 528 718 1,496 216Total population 19,950 3,976 54,858 29,491 11,192 1,859 205Achieved % 0% 0% 0.7 1.8 6.4 80.5 105.4

Revised populations

Nation Dormant Zero Inc £1-£10k £10-£100k £100k-£1m £1m-£10m £10m+ TotalEngland 3,685 4,314 67,010 32,547 11,968 1,791 216 117,846Wales 271 318 4,691 1,636 592 62 4 7,302Scotland 0 0 13,127 8,629 2,569 161 12 24,498N Ireland 0 0 1,253 988 656 153 0 3,050Total Active GCs 3,956 4,632 86,081 43,800 15,785 2,167 232 152,696

• 18,000 are CLGs• CC register much larger – 160k in E&W

Overview: the sector in 2001/02

• 153,000 active general charities• Income of £20.8 billion • Expenditure of £20.4 billion• Total assets of £70.1 billion• 569,000 paid staff

Distribution

1.4

7.5

23.728.9

38.6

59.4

28.7

10.3

1.4 0.20

15

30

45

60

£0-£10k £10-£100k £100k-£1m £1m-£10m £10m+

Sh

are

of t

ota

l (%

)

Income 2001/02 General Charities 2001/02

Winners and losers

• Large charities: maintaining key revenue streams and service levels. Achieving economies of scale.

• Small and medium charities: falling income and expenditure. Driven by falling voluntary income.

• Overall: Long term growth and concentration, short term dip

The income mix

• Earned income rising in real terms• Voluntary income is falling• Investment returns fell• Evidence of crowding out of voluntary income?

The income mix

Earned Income

Voluntary Income

Return on Investments Total

General Public 16.2 19.6 0.0 35.8

Public Sector 17.1 19.1 0.0 36.2

Private Sector 1.7 2.4 0.0 4.2

Voluntary Sector 1.3 5.2 0.0 6.4Internal 5.2 0.0 10.0 15.2Other 1.3 0.8 0.0 2.2Total 42.9 47.1 10.0 100.0

Income Type

Income Source

Earned income

• Earned income was £8.9 billion in 2001/02• Increasing as a proportion:

– 33% in 1994/95, – 39% in 2000/01– 43% in 2001/02

• Increase of £581 million in 12 months

Earned income is rising

£8.3

£10.6

£2.2

£8.9

£9.8

£2.1

£0

£3

£6

£9

£12

Earned Income Voluntary Income Return on Investments

Bil

lio

ns 2000/01

2001/02

Many organisations are earning

0%

25%

50%

75%

100%

£1-10K £10-£100K £100K-£1M £1M-£10M £10M+ All

Investmentreturns

VoluntaryIncome

EarnedIncome

30%

40% 38%

47%44%

43%

Trading subsidiaries

• Earned income is not restricted to trading companies

• An additional £1.1bn earned via subsids• Gross margins estimated at 20%• However, many trade (purposely?) at a loss

Loan finance

• Evidence from balance sheet and expenditure on interest (data on smallest poor)

• Outstanding loans estimated to be £1.8 bn• Increase of 18% in 12 months• £105 million spent on interest payments • Nominal rate: 6%

Learning1: blurring of the boundaries

Learning 2

• Social enterprise is widely embedded within mainstream VCOs, at all scales

• Changes in the organisational landscape are occurring – ‘charities’ are changing, mirroring other sectors

• Noticeable long-term (and short-term) shift to earned income

• Increasing competition may blunt this• Marketisation: relation between earned and voluntary

income?• Loan finance: function of a low interest rate economy?

Learning 3

• Balance of risk needs addressing• Better understanding of core costs needed• Procurement practices engender monopolisation• Significant evidence of good practice, new ideas• Social enterprise is widely embedded within

mainstream VCOs, at all scales• Investment in infrastructure will help further• But it is not a magic bullet• Social enterprise: a verb, not a noun