If you take on finance through social investment, you have to ensure that you have a market for people to deliver services and that you can repay the investment. It is important that board members fully understand the advantages and risks.
In so many social enterprises, charities and community organisations, the challenges of finance and finding our way through the growing social investment market are complex.
How do we as board members navigate our way through? After all, the buck does stop with us and we carry the legal responsibility for the accounts ensuring that we do not become insolvent and carry on our business at a loss. This does ask the question why would we take on loan finance or finance at risk?
As Chair of Sheffield Futureshapers Ltd, we have a Social Impact Bond and a separate legal structure from the parent company Sheffield Futures. The Bond allows us, or someone on our behalf (Triodos Bank in our case), to raise money from investors and provide the finance up front for us to deliver a programme across Sheffield to prevent young people from becoming out of education, employment or training (NEETs). We have a target number of young people (over 1000) and over 3 years, we have to demonstrate that we have achieved a whole range of changes in behaviour and achievement that will help them get into employment , training or stay in the education system. If we do that, then the Department for Work and Pensions pay Sheffield Futureshapers Ltd at staged intervals as individual young people can show that they are changing their attitudes and attending school, training or staying in their job. It seems straightforward when you read what we are trying to do and to know that investors are repaid if or when outcomes are achieved.
So what are the risks and the opportunities?
If we had not been successful in engaging in this financial model, we know that the work would not have happened, extra resources focused on young people in schools, colleges and working with employers. A scheme of £4.2m is substantial and the risk of not performing means that investors will not be repaid!
My role as Chair is to work with the investors and the service providers to ensure we have the information, data and forecasts as accurate as possible for us to make the decisions that will deliver the results for investors, young people and the providers. We cannot and do not assume that the investors, commissioners and all delivery partners see or value the outcomes in the same way and therefore communicating with all partners is key to managing the financial flows and the delivery of the services.
Social investment is a balance of risk and opportunity, and as a trustee we need to assess the information from our own position. As ambassadors, we want to share the journeys we are on and the issues we are learning to manage. We can talk from similar perspectives and share our experiences in weighing up the options to bring in new finance.