hr investment readiness cst 3
TRANSCRIPT
Community Sector Trading
Hugh RoloHead of Assets and Investment Development Trusts Association
www.dta.org.ukChair The Key Fund Yorkshire
www.sykeyfund.org.ukDelivery Partner Adventure Capital Fund
www.adventurecapitalfund.org.uk
Core Ideas
• How people learn /what people learn• Vision and leadership• Interrogating the “business model”• Investment Readiness• Grow change or die: resilience• Pitching ideas• Helping people is hard
Maths
• 10 sq feet =1 sq metre• Construction Costs Land plus £70 per sq foot• £100k costs roughly £13k per annum to repay
over 10 years at 6% fixed (surplus 3 x cover)• Base Rate is 1.0% per annum• Borrowing over base rate (2%)• Fixed rates—linked to Gilts (ACF/FB currently
6%) • Borrowing periods 1,3,5,710,15,20,25
Some basic concepts
• Size matters (£1mn generates £100K)• incremental growth—the trend is your friend• capacity for abd (£100k turnover+?)• Sweat equity (£50k per £1mn)• Gross Margins (capital employed/value
added/cost of entry)• Organisational capacity (governance/finance)• Investment Readiness
Quality of Income
• Earned and grant• Established streams• Joe Public/commercial market• Diversity of income• Large and overlarge contracts• One trick pony• Rental income is potentially high margin• Pig on Pork
Liquidity
• Cash is king • Current Ratio—cash flow• Dig below the numbers• Cost control• Going concern ---trading when insolvent• Reserves
Accounts and stuff
• Limitations of Financial Accounts• Best we have got• Audited and management accounts• Timely ability to produce and
understand own numbers
Getting Investment
Building Confidence and Capacity
– Understanding the market and benchmarking against the best
– Understanding the business– Being real about risk– Knowing the numbers– Selling- sound bites and stories
Getting Investment
• Building Confidence and Capacity
– Integrating with Mission - your Vision, Strategy and Business Plan
– Ownership of the Strategy – your Board or Trustees/stakeholders/staff
– Preparing for the longer haul
Investment finance
What Do You Want It For?
– Development Finance – grow change or die - (for R&D, new project development, future planning)
– Capital development – acquiring assets - for refurb, new build, equipment
– Working Capital – for early trading/monthly turnover
Types of Finance
• Working Capital – reserves, creditors/suppliers, factoring, overdrafts
• Equity – selling part of the business as an investment to others e.g. joint ventures and community share issues
• Debt – borrowing (serviced financially) and Programme Related Investment (serviced with Social Returns)
Borrowing and Quality Revenue Streams
Gearing• The amount of debt shown as a ratio of
business value. Some businesses can sustain more than others
• Get it right - go further faster• Get it wrong - crash and burn
Borrowing and Quality Revenue Streams
Security and Servicing Debt
• Tenure• Clawback• Quality of Revenue Streams - Pig on Pork,
multiple risk
Social Returns on Investment
• Know your neighbourhood and business baseline statistics
• Quantify the cost of doing nothing • Methods of Measurement
– Social accounting– SROI—Prove it– Change Check– Tell your story
ABL
Managed workspaceConference spaceCommunity Facilities
ABL Bradford
ABLRent £190,000Service Charges £250,000 (in and out)Sessional rental £140,000Total (Turnover) c£600,000
Asset Value:190k + 140K = 330K x 10YP = 3.3mDebt: £800k (£300k ACF (PRI element), £250k
Barclays, £250k BMDC)
Where from ?
Borrowing• Own Bank• Sector Specialists-Triodos/Unity/CharityBank/SELF/CDFI/
Co-op/Futurebuilders/Adventure Capital Fund/Community Builders/Department of Health Fund
• Regional Development Funds
Equity• Share Issues• Venture capital funds
Share and Bond Issues
• Shares and Bonds are different• Legal Structures – not all organisations can do
it• Raising money in campaign mode – can help
build support for projects
Growth in community investment
Community investment practices date back to the nineteenth century. There has been a revival of interest in the last ten years.
0
20
40
60
80
100
1987 1993 1998 2003 2008
No. of cases
Trade activities
3Other
1Fair trade
2Football
2Utilities
2Farming
2Transport (heritage railway preservation)
5Regeneration, land, buildings
7Community finance
8Community retail store
9Renewable energy
Number of organisations
Trade activities of organisations issuing community shares or bonds since 1999
Basic facts and figures
• At least 84 cases of enterprises with more than £10,000 of community investment
• Total community investment is £298m
• Combined membership over 6 million
• 41 new cases in last 10 years, raising over £45m from 63,4000 members
• Median amount raised is £135,000
Headingley Development Trust
• IPS community benefit society registered 2005
• 790 members: min. shareholding £5
• Withdrawal notice six months
• Campaign to raise capital for enterprise and arts centre raised £105,000 in member share capital
Westmill Wind Farm Co-operative
• IPS co-operative registered in 2004
• Raised £4.4m from 2,382 members buying transferable share capital through a fully authorised share launch
• Projected interest on capital of 5% pa rising to average of 12% pa over 25 years
• Investors qualified for Enterprise Investment Scheme tax relief
• Cost of share offer £150,000
