When a CIC fits and why

Last month I asked an uncomfortable question: has the CIC bubble burst? I wrote about how the Community Interest Company model has been picked up by people who like the sound of it without understanding what it commits them to, and how that puts a strain on the reputation of the organisations using it properly.

That needed saying. But it only tells half the story, and I would not want anyone reading it to walk away thinking a CIC is a structure to avoid. It is a genuinely good fit for a great many organisations. More than 37,000 CICs are now on the register in England and Wales, up around 12% in a single year, and a large share of them are doing exactly what the model was designed for. So this month I want to turn the question around. When does a CIC actually fit, and how do you know if it fits you?

What the CIC does well

The starting point is the community interest test. To become a CIC, you have to satisfy the Regulator that a reasonable person would agree your activities are carried on for the benefit of the community. That test sounds like a hurdle, and it is, but it is also the thing that gives the structure its meaning. It is a public statement that your organisation exists for a reason beyond private gain.

Sitting underneath that is the asset lock. This is probably the most misunderstood feature of the whole model, so let me be plain about what it does. It does not stop you making money, and it does not stop you paying yourself or your staff a fair wage. What it does is guarantee that the assets you build up stay tied to your social purpose. You can trade freely. You can pay proper salaries. What you cannot do is quietly extract the value for private benefit. Far from a restriction, it is a promise, and funders, commissioners and partners read it as one.

That combination is what makes the CIC such a practical vehicle. You can trade and earn your income. You can raise finance, including through shares if you are limited by shares, subject to the dividend cap that keeps the balance tilted towards the mission. You can pay the people who do the work, including yourself, which matters more than people admit. And you get a recognisable, accountable brand that tells the outside world what you are about.

The signals that a CIC is right for you

In my experience, the organisations that thrive as CICs tend to share a few things. They have someone at the helm with real entrepreneurial energy, someone who wants to build and grow rather than simply administer. They expect to earn most of their income by trading or through a steady mix of grants and earned revenue, rather than relying on donations. And they are comfortable with the idea of being a business that exists for a social purpose, rather than a charity in the traditional sense.

If that sounds like you, the CIC is often the more natural home. It gives you room to move, to reinvent, to respond quickly to an opportunity, in a way the charity structure can find harder.

A real example

Traphouse Boxing is an emerging CIC that I have been helping start up. It became clear from session one that a CIC was the right model for its founder, Jack Ewbank. All the clues were there, a strong entrepreneurial spirit, an instinctive understanding of the benefits of grant funding, underpinned by a commitment to giving something back. Jack understands that organisations are stronger with regular, smaller, predictable income, rather than waiting for larger, irregular donations. His vision, his passion, his energy and his knowledge can be used to the full in a CIC, which is why setting up a CIO did not appeal to him. He chose right.

The honest caveat

A CIC is not the right answer for everyone, and I would be doing you a disservice if I pretended otherwise. It pays corporation tax like any other company, and it cannot claim Gift Aid, which makes a real difference if your income is going to come mainly from donations. For some organisations, a charitable structure is the better fit, and next time I will look at one of the alternatives, the CIO, and when it wins.

For now, the takeaway is simple. If you have the drive to build something, expect to earn your way, and want a structure that keeps you accountable to your community, a CIC is well worth considering. Getting that decision right at the start saves a great deal of time and cost later.

If you would like to think it through for your own situation, I offer a free 45-minute advice session. Book one and we will work out what fits.

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