There's a lot of pressure on the voluntary sector to become less dependent on grants and look at other ways of fundraising and generating income. In this section we look at ways to make your funding sources as diverse as possible.
Unrestricted income is money that you can use for any purpose that meets the aims and objectives of your organisation. Having ways to generate unrestricted income is especially useful as the cost of living rises as it can be used to cover your organisation’s running costs such as rent, utilities and other overheads.
There are many ways the voluntary sector can generate its own income by the sale of products, services and expertise, e.g.:
Income generation can bring a number of advantages. It can:
Some organisations are better placed than others to explore income generation. You may have products that arise from your mission, or you may already be service based and have partnerships with local authorities to which you can sell your services. But if this is a new area for you, make sure you do a feasibility study and full risk assessment. Find out about the competition and get advice from other similar organisations. Any activity that involves trading may have legal and tax implications, and you need to check your governing document allows you to carry out these activities.
Some trading activities may mean a separate trading company should be set up. This is tax-effective, as the profits of the trading company can be gift-aided to the parent charity. Also keeping this income generation work separate can help prevent your organisation getting diverted from its main mission and losing sight of its priorities. Seek professional advice on how best to structure your trading.
Running a successful social enterprise requires different skills and attitudes than most voluntary sector organisations are used to. Sales and contracts have to be won and costs have to be recovered from income. Marketing and selling replace fundraising as key functions, so you'll probably need additional trustees and staff with expertise in new areas. Success will depend on entrepreneurial ability as well as good management skills.
If you contract out your services, beware of penalty clauses for non-performance, and make sure you get enough money to cover all your costs. This is known as full cost recovery, where the pricing of contracts and the fees charged reflect the full cost of delivering the service, including a reasonable allocation of overhead costs.
You'll need financial support for your new enterprise. It may be possible to use some of your reserves to invest in income generation. If it's a commercial, rather than a charitable activity, then make sure you get an independent assessment of risk and return on the money. You could also think of borrowing the money if your constitution allows it. There are a growing number of sources (including some grant giving trusts and ethical banks) that now specialise in lending to the voluntary sector and have experience in supporting social enterprise.
Loans can allow your organisation to do today what might otherwise take years. More flexible than some other types of funding, loans take less time to arrange and require less onerous reporting and monitoring. The lender will want to see a business plan and marketing strategy, and they will examine the organisational capacity to take on any new activity. As a legal agreement is being entered into, you'll need the full agreement of your board.
Here are some organisations that can help: