Case Stories

Diversifying Income: From Donor Dependency to Enterprise

| Updated September 12, 2018

When it comes to financial sustainability, it pays to be creative

Originally published: June 2018

For many years YKids, a charity supporting young people in Merseyside in northern England, was completely reliant on grant funding.

CEO Claire Morgans wanted to find ways to develop a more sustainable income. But she knew writing lots more funding applications would take up a huge amount of resources: “Every bid is different, there’s so many hoops to jump through and different reporting requirements each time.” Instead, she saw opportunities in enterprise, which also tied in with the nonprofit’s broader goal: “Our area is run down. It needs money coming in to it, people need sustainable jobs,” she said.

Morgans took a course with the School for Social Entrepreneurs in 2006, and has since thrown all her energy into various profit-making ideas. The first was a cookery scheme that taught cooking skills in schools and community centres. It ran successfully for three years but was unable to continue when austerity hit its key customers — the schools, which had fewer resources to pay for workshops. “We made many mistakes with our first social enterprise — but we learnt from them,” she said, speaking at an event hosted by The FSI.

Then in 2012, the charity was offered a rent-free space on the local high street for one year, leading YKids to open a new cafe that competes with commercial businesses while employing disadvantaged young people. In 2016, the charity set up another cafe in an NHS building. But they soon discovered that this space wasn’t well-equipped for catering, making business tough to sustain; in 2018 they agreed to close that business. In the meantime, though, the charity has created another venture: a beekeeping project that gives young people the chance to learn new skills while making and selling beeswax products such as lip balms, beard balms, soaps and wildflower seed bombs. The project also prompted a fun new fundraising idea: donors can now “sponsor a bee”.

How has this journey helped with financial sustainability? “Earned income from sales is still a very small amount of our overall turnover, but we are still learning,” said Morgans. “It is a changeable climate, and even with the best will in the world you don't know what unpredicted new legislation, local or even global circumstances will have an impact on your plans.”

Morgans admits that the social enterprise strand is unlikely to entirely replace other streams of income, which currently include a mix of grant funding, individual donors, contracts and service level agreements. In fact, their high street cafe has yet to turn a profit. But Morgans isn’t fazed. In fact, she plans to open a satellite in the local shopping centre next year.

And while she’s still looking for “that big idea that will make lots of money”, she also believes the cafe brings more than just direct financial benefits.

As well as providing valuable experience to young apprentices, the cafe “sends out a powerful message: that we’re about supporting the whole person,” she said. “It’s great to take funders there… we gain support because people see us delivering quality. We’ve gained a new venue we can use for charity events. The space has opened new doors, helped create more of a sense of community with the public and seen many young people with barriers to work begin a successful career.”

Top tips

What is Morgans’ advice to others looking at diversifying their income through social enterprises?

  • You don’t know what you don’t know: ask others for advice as you go along — and keep asking.
  • Watch out for mission drift.
  • Be careful about how you link the charity and the business, so that if the latter fails — knowing that a high number of new businesses do fail! — it won’t affect the charity’s stability.
  • Act quickly to address problems as they arise.
  • Take time to ensure you’re hiring the right people to run your business; include a probation period.
  • Be prepared to fail — then get up and start again. Failure is a learning curve; no one gets everything right the first time.

YKids was presenting at "A Conversation About....Diversifying and Maximising Income", an event hosted by the FSI for small charities. For more FSI events, see www.thefsi.org.

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

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