Small charities are the backbone of the UK charity sector, often addressing niche needs and serving local communities with dedication and passion. However, achieving financial sustainability can be a significant challenge, especially when relying on traditional income streams such as grants and donations. One promising avenue small charities can explore is trading income – income generated from selling goods or services. This blog will delve into how different charities can develop this as an income stream, the specific skills required, potential risks, and how to maintain core values along the way.
Understanding Trading Income
Trading income refers to revenue generated from the sale of goods or services. For charities, this can encompass a wide range of activities, from operating charity shops and cafes to offering training awareness programmes and hiring out rooms. All of these have the capacity to provide a steady and reliable revenue stream of unrestricted funds, helping small charities to become more self-sufficient and less reliant on unpredictable funding sources. But if you do decide to go down this route, you should do so with your eyes wide open to a few potential pitfalls.
Why Trading Income Suits Some Charities Better Than Others
While trading income can be a valuable addition to a charity's financial strategy, it is not a one-size-fits-all solution. Several factors determine whether a charity is well-suited to develop this income stream:
Mission Alignment: Charities whose missions align with marketable goods or services are better positioned to leverage trading income. For example, a charity focused on environmental sustainability might sell eco-friendly products, while a skills development charity could offer training workshops.
Market Demand: Understanding and meeting market demand is crucial and this is where you might want to invest in expert help early on. I'll risk stating the obvious to make this important point: doing trade is markedly different to doing charity. Charities must identify - not guess! - what products or services are needed or desired by their target audience. Conducting market research is essential to gauge interest and potential competition.
Resource Availability: Developing trading income requires resources, including staff time, expertise, and initial capital investment. Charities with limited resources might find it challenging to embark on trading ventures without compromising their primary activities.
Organisational Capacity: Charities with strong management and operational structures are better equipped to handle the complexities of trading activities. Note that capacity is more than a numbers issue; it's about having people with the right skills set.
The Human Factor: Adapting to a Commercial Environment
Transitioning from a purely charitable mindset to incorporating commercial activities can be challenging for charity staff. This adjustment involves embracing sales techniques, which can feel at odds with the core mission of helping and supporting. Below are two illustrative examples:
Case Study 1: Selling Supplementary Disability Equipment
A local disability charity set up a store to sell disability equipment. Already contracted by the local authority to provide basic items to eligible individuals, this looked like a win-win for the charity and beneficiaries alike. The store set up by the charity offered a "try before you buy" consultation service, and was already well trusted locally. Sadly, what no-one anticipated was what happens when a charity beneficiary is treated and therefore behaves like a customer. Individuals were quite happy to accept the consultation as a charitable activity, but then assumed the right to go away and purchase the same item at a slightly cheaper price online. The charity's staff had not been trained to manage this kind of challenge and were also uncomfortable about working to sales targets. The store was closed before it ever turned a profit.
Case Studies of Successful Trading Income Strategies
Case Study 2: A School for Social Entrepreneurs
This charitable organisation offers training and mentoring to local social enterprises and charities. They generate income by charging for their courses and workshops, which are designed to help other organisations develop their own trading income streams.
How they do it:
Community Integration: By focusing on local needs and tailoring their programmes accordingly, they remain highly relevant and valued in their community.
Expertise and Credibility: The school's established reputation and expert trainers attract participants willing to pay for quality training.
Case Study 3: A Local Tool Library
A Tool Library, which lends tools to its members, generates income through membership fees and tool rental charges. This innovative model not only supports the charity financially but also promotes sustainability by encouraging the sharing economy.
How they do it:
Unique Offering: Providing a service that is not commonly available but highly useful to the community.
Sustainable Practices: Aligning their trading activities with their mission of promoting sustainability.
Should Your Charity Consider Setting Up a Separate Trading Arm?
When developing trading income, charities might consider setting up a separate trading arm, such as a limited company. This approach has both advantages and disadvantages.
Pros:
Limited Liability: A separate trading arm can protect the parent charity from financial risks associated with trading activities.
Tax Efficiency: Profits from trading can be donated to the parent charity, potentially reducing tax liabilities.
Professional Management: A separate entity allows for dedicated management and operational focus on trading activities.
Cons:
Additional Costs: Setting up and running a separate entity incurs additional administrative and regulatory costs.
Complexity: Managing a separate trading arm can add complexity to the charity’s operations.
Potential Disconnect: There is a risk of the trading arm becoming disconnected from the charity’s mission and values.
Do’s and Don’ts of Developing Trading Income
Do’s:
Align with Your Mission: Ensure that your trading activities support and enhance your charity’s mission.
Conduct Market Research: Understand the market demand and competition for your products or services.
Start Small: Test your trading ideas with pilot projects before scaling up.
Engage Stakeholders: Involve beneficiaries, volunteers, and supporters in the development of your trading ventures.
Provide Sales Training: Equip your team with the necessary skills to adapt to a commercial environment, including sales techniques and customer service.
Don’ts:
Neglect Core Activities: Ensure that trading activities do not divert resources and attention from your primary charitable activities.
Underestimate Costs: Be realistic about the initial investment and ongoing operational costs required.
Compromise Values: Maintain ethical standards and transparency in all trading activities.
Ignore Legal Requirements: Ensure compliance with all legal and regulatory requirements related to trading.
Overlook Staff Concerns: Address any discomfort or ethical concerns staff may have about engaging in commercial activities to ensure their full support and commitment.
Conclusion
Developing trading income can be a viable strategy for small charities seeking to enhance their financial sustainability. However, it requires careful planning, market research, and a strong alignment with the charity’s mission and values. To successfully integrate trading income into your financial strategy, you need to leverage the right skills, manage risks, and at all times maintain a clear focus on your core mission. I hope this article inspires you. Good luck!
From The Boiling Frog
Thanks for hopping into this week's reflections. Whether you work or volunteer for a charity, or you're just curious about the charity world, I hope today's musings left you with something to ponder, debate, or act upon.
And remember, the water's always bubbling with fresh ideas and lively opinions here, but it doesn't always have to be my voice croaking in the pot. If you've got thoughts, challenges, or insights to share, I'd love to hear from you and I'm sure others would too. Why not hop in and join the conversation? You can submit your idea here.
Until next time, stay curious, stay critical, and let's not get too comfortable.