CIC Association

Serving Community Enterprise

JMulkerrin at the CIC Forum July 2010 and powerpoint

2500 words and a powerpoint for the more enthusiastic, its as rounded a discussion as ive managed to date and a good read if you want to get a grasp of some of the background thinking.

 

 CICAssData_Graphs_July2010.ppt

 

Good afternoon everyone, welcome to the graveyeard session! Its nice to see some friendly faces here today , from interns like Gervas, who’s come down from Leeds to knarly old progressive socialists like Mike , who’s put a lot of probono work in getting our data system in place, and is a key part of the next development stage for the Association. CIC really is a broad church and im very happy to have the opportunity to talk this afternoon on behalf of the Association and the basic agenda we’ve been developing.

 

We’ll be posting plenty of the content online after the event but if you have any questions feel free to contact me direct at john@cicassociation.org.uk. If your not a member and want to get involved please join up at www.cicassociation.org.uk. It doesn’t cost anything to join, and we would welcome your involvement.

 

Right, well I guess from my own opinion I’d say that basically the fledgling legislation we call CIC is basically in rude health! Easy to incorporate, and a basic proposition that most people find agreeable. Its picking up on the ground…….

 

This Forum however is set this against a a backdrop of job cuts, pay cuts and tax rises, of substantial public sector spending cuts, and what seems to be a transformational change in the way UK plc will be operating. With obvious challenges across the board, in social care, housing, education and community development to name just a few, the collective ‘Third Sector’ will be more important than ever. The next few years will be challenging, but also full of opportunity to build successful social businesses, some of the largest social businesses today were founded during the hardships of the 1980s.

 

I believe CICs will prove an essential new tool in the solutions toolkit, and a practical way to bring capacity to the Third Sectors overall policy delivery programme. Both within the Third Sector and also in the wider business commnity, It provides a multi billion pound opportunity to innovate, allowing social enterprise to create new practical solutions, definitely of relevance in a Big Society environment, and of practical use whatever the political idealogy or economic conditions.

 

Im not sure how it will all pan out, what decisions will be taken in the spending review, but I do passionately believe that CIC has a big role to play, and more urgency should be placed on developing a rounded strategy as soon as possible.

 

CICs have been around for 5 years now, and whilst the take up and buy in on the ground seems strong the lack of central development has become somewhat obvious in certain ways, such as a lack of awareness amongst key stakeholders as to its potential in helping solve their problems.

 

Packaging quality information tailored to specific stakeholder groups will make a real difference. In theory (at least at the moment) CIC could be used to

help Charity as a whole reduce its VAT bill quite dramatically.

It could and should be used to package new investment structures, tapping into the changing investment and consumer trends to bring new money into the Third Sector.

Personal investment from communities, tax efficient corporate investment, and a new way for Charities to re-cycle part of their billion pound reserves, amongst many others these represent real opportunities that should be developed.

 

It should also be used to help Local Authorities transfer assets to the community, enabling the potential to develop new uses for local assets whilst protecting those assets under the asset lock.

 

Im very keen to develop CIC Bonds, which I think can be set up relatively cheaply modelling themselves on existing proven structures, and im glad to say the idea is slowly picking up speed. The Association would be a great vehicle to take such development forward, and by charging a transaction fee would provide an income stream which would fund all the development required moving forward. Eg procurement figure market size is 141 billion per annum, 1% market share for CICs is 1.41 billion, 1% marketshare for CIC Association 14.1 million x 5%transaction fee = £705,000.

 

The still underdeveloped share structure is another debate that should be brought forward, the recent report by Vince Heaney for CSFI and Nesta put it far more eloquently than I can, and I’ll support whatever work the regulator wants to do on this.

 

Specific issues such as exit strategy, lack of investor awareness and the dividend cap create challenges that require creative thinking. We think it’s important to challenge the (sometimes unduly negative and inaccurate) status quo that is the current opinion on investing in CICs. It’s interesting to note that research indicates investment in social enterprises is in fact, likely to be less risky than regular small business investment. The recent changes in the dividend caps have undoubtedly opened up a much larger group of potential investors, and we’ll be looking at how we can help develop the opportunity.

 

Previous Patient capital models such as the Adventure Capital Fund are a great source of confidence and proof it can work. It’s been a great success for all parties involved, most notably the investee community organisations. In the two years after being offered funding, they more than doubled trading income and increased capital assets by nearly 400%.

 

One important finding from the ACF was how fragile some of the investee organisations were, and this seems to mirror a general consensus that there is still a lot of work to do in preparing social enterprise for investment. They now phase their development in two stages, pre- development and implementation phase. Getting expert advice and training to develop the skills to successfully transition from great ideas to sustainable social enterprise has played a key role, and its important we tap into the experience already out there when taking things forward.

 

I hope today brings real action, my sister and I incorporated one of the first 100 CICs, and I remember attending the first CIC anniversary event at the RBS Auditorium. In many ways CIC is slowly becoming what I thought it would be, although personally I think far more urgency should be applied to developing it as a strong part of the Third Sector.There’s no reason it cant create the impact co-operatives have achieved, that charities have achieved.

 

I personally have to say that im slightly disappointed that we’re not further down the road from the conversations we were having then. Despite the record public investment in to the Third Sector over the last few years practically nothing has been invested in developing the potential of CIC, when taken in context that shouldn’t be the strategy for the five years.

 

Powerpoint Slide 2

 

The impetus for the Association has come from CICs wanting a way to directly engage in the agenda, from a defined CIC perspective. Myself and Tom Barnett, who sadly cant be here today as he’s en route from holidaying in Italy, announced the idea in Nov 08 and with a motley crew of approx 80 started to develop a low cost strategy to engage with the debate. We incorporated the CIC Association in Se09 with an £8k grant from the Regulator, and as of yesterday had 788 members from across all regions and business sectors. I personally think CIC should be a Third Sector secret weapon, not a Third sector secret.

 

Powerpoint Slide 3

 

Reports like the CSFI have been a real shot in the arm to all of us who have worked on the CIC Association so far, and I hope we’ll be supported to take forward the CIC development recommended within the report, which is beyond the current realms and responsibilities of the Regulator.

 

 

I’ll buzz through some background info and early data trends if I may,

Powerpoint Slide 4

 

Ok, so just a bit of basic data, 4102 have been created, with 3895 (95%) in existence.

 

We’ve started to build a central data system which captures all the relevant data, which can then be used to help build an accurate evidence base. CICs can be identified so if we can encourage early involvement from CICs this will become a growing resource for academics, policy makers etc

 

Slide 5 here’s the conversion trends, although its too early to make much of it

Slide 6

Slide 7 Scotland, Wales and Northern ireland have the least activity over most indices, whether its relevant remains to be seen

Slide 8

Slide 9

Slide 10 We can identify CICs down to ward level, particularly useful for building local networks etc, or communicating locally. For example a Housing Association in derby is looking for a Director with CIC experience, we were able to give them a list of CICs in their local borough

Slide 11 Using SIC Codes helps integrate data into govt existing systems, and provides evidence of CIC impact and a way to communicate with a CIC sub group

Slide 12 example, Education

Slide 13 you can even boil down to sub sectors, which is great for building consortia within specific business practices, such as healthcare.

Slide 14 Our first questionnaire gave us some great early information, and informed our development plans. We hope to have another questionnaire out to members before the end of autumn, and with the increase in members it’s a great opportunity to get strong feedback from the frontline.

 

Slide 15 As you can see from this the general development issues are the same as other organisations, but CIC awareness is surely one we must work on centrally.

 

Another factor to consider is attracting new talent into the sector. Private sector career changers were identified as one of the hot prospect groups in the Cabinet Office report, Is Social Enterprise at a crossroads? (17092008). There are a lot of newly highly skilled individuals out there, many with talent and experience that can benefit the social enterprise sector as a whole. We feel CIC has a part to play in bringing those skills into the sector.

 

Access to secure and sustainable funding, whilst a general challenge to all small business, can prove especially tricky for CICs. Early evidence suggest both CLS and CLG suffer from systemic awareness issues when trying to access funding and In some circumstances are even at a disadvantage! It will be interesting to see what actions result from the recent report.

 

There’s a raft of basic information sharing that needs to be done, I recently spoke to a regeneration practitioner working across all sectors who’s also a director of a development trust. Although working on 3 projects that could benefit from being a CIC, he felt that work needed to be done to better explain CIC to Local Govt, as most of his clients there weren’t up to speed with the structure, and they had difficulty understanding the fundraising opportunities (especially CIC Shares)

 

Accountant awareness of CICs is patchy, problems include

 

Clients being told they need two sets of accounts prepared - one as a CIC and one as a limited company, so they will have to pay double.

Charging £1000's to incorporate a CIC, when all the documents are available online for free.

Treating grant income as turnover, which can lead to VAT issues etc

Ignoring non business/business splits when dealing with VAT.

Treating all income as subject to corporation tax, and then charging for the tax enquiry and work required to reclaim corporation tax that should not have been paid in the first place.

Overcharging to complete a CIC Report, when the two figures required can be taken straight from the annual accounts.

 

Transaction cost is normally a term used to describe the cost of engaging with companies by professionals, I hope the term can be widened to include the cost of engaging with professionals by companies. Horror stories of thousands of pounds being charged for inadequate advice are not unusual, and its important this is minimised .The need for appropriate accountancy support of a high quality has never been more important, and we’d like to develop a CPD module for professional groups.

 

Not being able to submit all forms online, again something we hope can be overcome, whilst it isn’t a massive issue it’s the type of thing that need addressing centrally.

 

Another important area is business rate relief. Whilst its understandable that every local authority makes it own decisions, they should be given good information on what CICs are all about.

We recently got involved in a case where a CIC started a second shop, and was refused relief after getting full relief on the first shop, albeit in another local authority. Having good information to supply your local authority is vital in communicating what benefits you bring to the community, and in this example the appeal was successful, reducing costs by thousands annually and making a fundamental difference to the viability of the business. We’ll be providing a case study for CICs to look at, its best to have these types of issues agreed before committing to premises etc. Sending out relevant information via the LGA is an easy step to take, and if done right we could isolate which boroughs want to encourage CICs into their area, often business rates can make all the difference and could be used by local authorities to attract start up CICs to their area.

 

We’ve just agreed a media partnership with social enterprise magazine, which will feature CIC content over 10 issue and we’re actively looking at other partnerships.

 

We’ve got a basic plan to transition the Association to a CLG, and put in place a voting mechanism to ensure CIC members have due input, and to apply to foundations for grant funding (as they generally don’t do for CLS)

 

I’ll be posting the draft memorandum and articles online tomorrow, along with details of how we plan to transition to a more stable base from which to build. I think we’ve done well with what we’ve got up to know, but building a strong board and organising the members skill sets will allow us to take the next steps. We’ve awaiting approval for a small funding application to cover the costs, and I hope we can attract more senior partners to work on joint funding bids. We’re also on the lookout for experienced bid writers, so please contact me if you can help. We’ve met with a number of key groups within the Third Sector, and joint funding projects seem viable in many areas.

 

We’ve started to develop the next stage of the website development, which will include an early online marketplace a more sophisticated data gathering process. If anyone has opinions or suggestions please feel free to get involved

 

We’d like a clear, strong vision and strategy put in place, to enable entrepreneurs to maximise the potential of the legislation. We’re prepared to support anyone else who takes up this role, but if nobody does we hope you’ll support us to help build on the work we’ve done so far.

 

I think I’ll stop there so we can get stuck into the discussion groups, does anyone have any questions?

 

 

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Tags: Association, CIC, Community, Company, Forum2010, Interest, John, Mulkerrin

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