Community Sector

Trading
Hugh Rolo
Head of Assets and Investment
Development Trusts Association
www.dta.org.uk
Chair The Key Fund Yorkshire
www.sykeyfund.org.uk
Delivery 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 workspace
Conference space
Community Facilities
ABL Bradford

ABL
Rent £190,000
Service Charges £250,000 (in and out)
Sessional rental £140,000
Total (Turnover) c£600,000

Asset Value:190k + 140K = 330K x 10YP = 3.3m

Debt: £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.

100

80

60

40 No. of cases

20

0
1987 1993 1998 2003 2008
 Trade activities
Trade activities of organisations issuing Number of
community shares or bonds since 1999 organisations
Renewable energy 9
Community retail store 8
Community finance 7
Regeneration, land, buildings 5
Transport (heritage railway preservation) 2
Farming 2
Utilities 2
Football 2
Fair trade 1
Other 3
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
 Contact

• Hugh Rolo h.rolo@dta.org.uk

• www.atu.org.uk

• www.communityshares.co.uk