Funding of Social Enterprise in the UK - Case Study Example

Funding of social enterprise in the UK a case study of Café direct 0 Introduction 1 Definition and importance of social enterprises A social enterprise is a business with more than one bottom line, measuring its performance on more than profit. Social enterprises may have double or triple bottom line measurements - financial; social or community or cultural; or environmental (Ridley-Duff, 2011, 46). As the concept of social enterprise has matured, there has been an increase in the range of forms it can take and the number of definitions used to describe it. Perhaps the most frequently cited definition is the Office for Civil Society’s: which refers to a social enterprise as a business setting with mainly social objectives whose surpluses are reinvested for that purpose in the community or in the business, rather than the need to maximize profit for owners and shareholders (Holmström, 2007, 78). This sector, therefore, includes a huge range of businesses, from the credit union set up in a community centre and serving a housing estate, to a corporation producing renewable energy turbines. A recent survey outlines the importance of social enterprise in the UK outlining achievements in profitability and attitudes to the future. 1.2 Social Enterprise and the Social Investment Market in the UK: An Initial Overview This study attempts to give an overview of social enterprise funding currently in the UK. It sets out some key dimensions of the social enterprise market including an overview of the role of government and the meeting a range of market needs, investor motivation, recent history and more. The study seeks to map the activity of social venture capital funds venture philanthropy funds, and other social investment funds against these dimensions (Price, 2009, 89). Slowly the world economy is recovering. The unparalleled challenges at global, national and territorial levels demand new strategies and tools to successfully address them. The market and the state cannot, on their own, regulate and solve all problems (Paton, 2003, 57). During the recession social enterprises, in the main, appear to be growing and to be profitable whilst achieving their social ends. Social entrepreneurs’ optimism remains high. Social investment in social enterprise remains vibrant in the UK, with at least 62,000 social enterprises and a combined turnover of £32 billion which equates to 5 percent of all UK businesses, contributing £8.4 billion to the UK economy each year (Ridley-Duff, 2011, 46). 1.3 Problem facing the social enterprise Finance department is the core problem for any business. A survey conducted by NatWest Small Business Research Trust indicated that large volume of paper work, regulatory framework and fluctuations in economic climate were the other major problem. Although, as indicated by the survey results reported in, access to finance is perceived by social enterprises to be a principle barrier to growth (Ridley-Duff, 2011, 46). According to a Bank research 32% of social enterprises cited challenges in obtaining external finance and 25% cited difficulty in getting grants as major barriers to expanding their enterprises, other problems included lack of appropriate premises (16%); lack of qualified staff (14%); and lack of cash flow (10%), lack of qualified staff was also a difficulty cited by 10% of the matched social enterprises sample as well. The elements for growth are present. Legal structures are in place in the UK and social entrepreneurship is thriving. Various sectors’ engagement, such as the corporate sector and the public sector, is growing. Transparency exists and there is a lack of corruption. Although intermediaries are present, more needs to be done to build the capacity of social enterprises to achieve greater returns. The ability to evaluate performance, to measure success and to be clear about value and risk-return is essential to future growth. Much needs to be done to strengthen the social investment process; much has been accomplished and social entrepreneurs remain dedicated and optimistic. 1.4 Research questions aim and objectives The study seeks to answer the following questions arising from the problems social enterprises are facing in relation to the funding system. 1. How does the general economic climate affect social enterprise funding? 2. How does regulation and paper work affect social enterprise funding? 3. What is the impact of social enterprise research trust on the available funding? 4. How does the lack of sufficient cash flow by social enterprises affect their funding? 5. What is the impact of poor management of social enterprises on their funding The main aim of conducting this research is to determine the methods of funding available for social enterprises their benefits and arising concerns. The study thus focuses on the following objectives; 1. to determine the effect of economic climate on social enterprise funding 2. to evaluate the effect of regulatory framework and paper work on social enterprise funding 3. to determine the impact of social enterprise research trust on available funding 4. to evaluate how lack of sufficient cash flow by social enterprises affect their funding 5. to determine the impact of poor management on funding of social enterprises 2.0 Existing Research on the Financing of Social Enterprises The role of social enterprises both in the UK and other regions worldwide known globally. In many of these, concerns touching on finance are raised as a major issue among social enterprises. Several mapping practices in recent years have sought to develop a profile relating to the activities of the sector in the UK at a local or regional level (Gidron & Hasenfeld, 2012, 124). This study seeks to test existing research conducted by several theoretical bodies such as NatWest Small Business Research Trust, which claimed that large volume of paper work, regulatory framework and general economic conditions were the major challenges cited by social enterprises; financial availability was rated as the major challenge that inhibits the growth of social enterprises. Social enterprise is directly affected by finance, because at particular stages of the growth of the social enterprise may affect their willingness to use appropriate forms of finance. Financing of social enterprises Social enterprises generate some of their income from trading activities, indicating that a portion of its financing needs can be met through payment received for goods and/or services. As for those social enterprises that do not trade in goods and services research indicates that much of the financing is made by grants from the central local and regional government, major forms of social enterprise require grant support during the start-up phases, although the extent of the required support varies (Smallbone et al, 2001, 18). Out of 80 social enterprises studied by researchers from the ‘University of Durham, 39%’ received grants from ‘Europe’, 49% from ‘local and central government’ and 33% from the ‘local authority’ (Kerlin, 2009, 17). This funding is often used to finance capital expenditure. In Bristol social enterprises reported that over half their current expenditure was financed from earned income. The two major sources of capital expenditure funding were found to be ‘other statutory agency funding’ that included, grants from Arts or Sports Councils) and local authority funding (Kerlin, 2009, 17). In addition, other sources of grants, in the form of national lottery funding, voluntary contributions, and funds from charitable trusts and foundations, in total made up 26% of their income. Available research reveals some use of non-grant finance by social enterprises. More than half the organizations investigated in their research had secured “soft” loans or some form of grant for investment in their initial stages, and several had obtained the loans from banks. Out of the organizations studied in Bristol, just under half had used non-grant finance, not only from CDFIs and banks but also from private individuals and members. There is also some evidence to suggest that demand for loan finance by social enterprises is increasing. Context for the dissertation This study seeks to determine the funding of social enterprises and the challenges arises that arise as social enterprises sort funding, a case study of CAFÉDIRECT the UKs largest Fair-trade hot drinks company. 2.0 Methodology 2.1 Research philosophy The social enterprise field of studies is yet to develop firm philosophical foundations as Social enterprise unlike private enterprise is not taught extensively or exclusively in a business school context, as it is connected to the public service delivery and health sector (Gidron & Hasenfeld, 2012, 72). Teachings related to the social enterprise maps extensively from the works of Karl Marx, Robert Owen, and Proudhon with works by Bourdieu and Putnam. Its supporters and academic community are much more committed to critical pedagogies (e.g. Paulo Freire) and critical trends in research (e.g. critical theory / Marxism / institutional theory) in relation to private sector business education. 2.2 Data collection Questionnaires will be submitted via email to the middle level and top management of ‘Cafedirect’ company, phone interviews will assist in collecting data on modes of funding. 2.3 Data analysis The data will be examined using the Statistical package for social sciences (SPSS) and Cost Benefit Analysis will be carried out. Bibliography RIDLEY-DUFF, R. J. AND BULL, M. (2011) Understanding Social Enterprise: Theory and Practice, London: Sage Publications. KERLIN, J. (2009) Social Enterprise: A Global Comparison, University Press of New England. RIDLEY-DUFF, R. J. AND SOUTHCOMBE, C. (2011). The Social Enterprise Mark: a critical review of its conceptual dimensions, paper to 34th International Small Business and Entrepreneurship Conference, Sheffield. Winner of Best Research and Knowledge Transfer Paper in Conference GORDON, A. BRAIDFORD, P. HOUSTON, M. ROBINSON, F. & STONE, I. "Business Support For Social Enterprises: Findings from a longitudinal study". Department for Business, Innovation and Skills (BIS). http://www.bis.gov.uk/assets/biscore/enterprise/docs/b/12-566-business-supportfor-social-enterprises-longitudinal.pdf. Retrieved 22 March 2013. MUTUO. (2009). Mutuals Yearbook 2009, published by Kellogg College, Oxford University. SOCIAL ENTERPRISE MARK. (2010). Social enterprise; trading for people and planet [Online], London: Social Enterprise Mark Co. http://www.socialenterprisemark.org.uk/ Accessed 11 February 2010. PATON, R. (2003). Managing and measuring social enterprises. London, Sage. PRICE, M. (2009). Social enterprise: what it is and why it matters. Fflan. GIDRON, B., & HASENFELD, Y. (2012). Social enterprises: an organizational perspective. Houndmills, Basingstoke, Hampshire, Palgrave Macmillan. HOLMSTRÖM, R., 2007. Funding story: Social enterprises. Third Sector, (491), pp. 21-21. FUNDING SCHEME FOR SOCIAL ENTERPRISES. 2009, Jul 27. Liverpool Echo, 18. UK GOVERNMENT: DEPARTMENT OF HEALTH (National) Social enterprise schemes discover funding allocations. 2007, Apr 04. M2 Presswire, 1 Read More