A well-run social enterprise has a medium to long-term financial strategy which ensures sufficient capital.
In other words, the business earns enough money from loans, share investment and retained profits to pursue its business development plan.
How to fund your social enterprise?
Before looking into social enterprise funding models, take a look at the business planning process outlined in Starting a Social Business and Growing a Social Business. Once you’ve worked through those sections, you’ll have a better idea of your ongoing capital requirement and how much money you need for:
- fixed capital investments (money that is invested in assets of durable nature for repeated use over a long period)
- long-term investment in invisibles (skills, market development and product development)
- working capital (the cash available for day-to-day operations of an organisation)
You can then establish a balanced investment strategy for your social business and decide whether seeking investment is necessary. Are there alternative strategies for financing?
Social enterprise funding challenges
If you’re not generating enough capital to meet your business objectives, the enterprise can face a number of difficulties, such as:
- Over-trading: The entire capital base (loans, share investment and retained profits) of the enterprise is not enough to cover a loss which is otherwise small in turnover terms (the level of sales).
- Being cash poor: The enterprise isn’t able to respond to demand because it cannot afford to purchase labour or raw material.
- Being under-capitalised: The enterprise cannot supply an increased level of sales, which means it’s unable to pursue new opportunities.