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Diversifying Income - a VCSE guide

So, the sector's latest buzzword and panacea, which for once might actually have a grain of truth in it....! For the past twelve years CAP has been advocating for VCSE organisations to spread their financial risk by diversifying their income, and for quite a few of those years our protestations seemed to reach deaf ears. Either that or what we were saying wasn't clear enough. Those that have listened are still around, doing well and looking forward to the future. Maybe now is the time to explain it to everyone else?

What is it?

Income diversification is simple really. It is a process of developing multiple and varied income streams, which you patchwork together to cover all of the organisation's costs. Sounds like what most grant-funded organisations do, right? Wrong - it's a blend of different types of income, not just juggling lots of grants.

What income streams?

Five main income streams (and in some situations there is a sixth):

  1. Gifts and donations - financial and non-financial resources 'gifted' to the organisation which it can use to further its objectives.

  2. Grants funding - great for pilots, short-term activities, occasional core funding, development and capital purchases - not great for sustaining projects (mostly).

  3. Public sector contracts - being paid to deliver a service on behalf of a statutory body or by someone holding a public sector contract.

  4. Open market trading/social enterprise - earning profits from the sale of goods or services has the potential to generate unrestricted income for the organisation.

  5. Social investment - there are billions of pounds of repayable loans, bonds etc. available to commercially-minded VCSE organisations that have a proven trading stream.

  6. Share capital - issuing shares to community investors (eg. Hastings Historic Pier) could raise large amounts of capital, but it requires a certain type of organisation.

Why diversify your income?

Risk - it's all about reducing the risk to your organisation's finances. Diversified income is potentially more stable, less vulnerable, less volatile and offers you more control over your organisation's future - space to plan ahead! Yes, you need to work harder to manage multiple income streams, but with modern accounting software (see Xero, Quickbooks, Sage) it is so much easier to stay on top of your finances. It also creates opportunities to have more choice in how the organisation's money is spent and to put more focus on your beneficiaries.

What's the best blend of income?

So many factors affect this answer, and it is almost impossible to give a single response. An organisation with assets could generate lots of trading income by 'squeezing their assets', a charity with public appeal will always draw in more donation income and a smaller, specialist organisation could be sub-contracted to deliver public services such as: mental health, wellbeing, youth services, advocacy, carer support, drug and alcohol support, housing etc. A good business developer should be able to identify a suitable blend, but they will need different skills around them to make those income streams happen. Plus, opening up a new income stream takes time. It's not something that happens overnight. It takes time, research, planning and the right skills.

I'm interested, where do I start?

If this has whetted your appetite and you'd like to know a little more about the dark arts of income diversification - what it is, how to do it and what not to do - then sign up for the Stronger Kent Communities newsletter and find out about the Leadership, Partnership and Development programme they are running this year. They have a webinar on the 23rd April, where I will be sharing my 30+ years of income diversification expertise in both the private and VCSE sectors. Would be great to see you there!

Alternatively if you want hands-on support with diversifying your income get in touch via Within the CAP team we have social enterprise expertise, extensive grant funding experience (giving and securing), a successful track-record of public sector tendering and sub-contracting and access to community fundraising professionals.

And if we can't help, we almost certainly know someone who can!

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