New employee-owned social enterprises that have ‘spun-out’ of the public sector have been the source of much interest over the last year or so. The Government has big ambitions for more public sector workers to explore the development of such employee mutuals, building on the last Government’s programme in the health service and other sectors.
At Social Finance, we think that the excitement is justified. Such social enterprises have potential to combine the social ethos of the public sector with an organisational structure that enables them to confront pressing social challenges in more flexible and entrepreneurial ways. Community health care providers that have spun out of the NHS, for example, are already using their independence to develop models of care that span traditional health and social care boundaries or to specialise in providing better, person-centred support for particular vulnerable groups of patients.
Yet through our work in supporting mutuals, we are also very aware of the challenges such groups of employees face. Should they fail to adjust quickly to the new commercial environment which they will encounter upon leaving the public sector, they may find that they lose contracts to public or private sector competitors – competitors that are often able to fund new developments or absorb losses for the sake of building market share. High on the list of barriers many face is a lack of finance. Even large community health mutuals with a turnover in excess of £25 million, often have less than £1 million of assets; barely enough to cover the next couple of weeks of costs, let alone to develop major new services.
This week we have therefore published a short Technical Guide to Financing Employee Mutuals, co-authored with Dan Gregory who has been at the forefront of supporting new mutuals over recent years. In it, we draw on our experience to help groups of staff to consider the finance they might need in order to spin-out and once they are a social enterprise.
Overall, our message is positive: spinning out is difficult and risky, but those who achieve it have exciting prospects for innovation and greater productivity in the delivery of public services. Investors are keen to explore forming partnerships with them. Accessing finance will, however, require careful planning, right from the start of establishing the new organisation. Social investors, who seek a combination of a financial return and a social impact, will often be particularly interested in financing mutuals, but such investment can take some time to arrange. Setting up the social enterprise with a structure that can receive external investment can be important, as can consideration of how an organisation’s social impact will be measured. The lesson from our analysis is to consider these issues early. By the time an organisation is running out of cash, it can be too late to attract investment.
By Ben Jupp, Director at Social Finance