Social impact bonds seems to be all the rage at the moment – have you heard about the Peterborough prison project which has been put together by Social Finance? Its aim is to reduce re-offending amongst a certain category of offenders. Or the SIB which has been created by Perth YMCA in collaboration with the Department of Work and Pensions, where the project is aimed at supporting young people? But what exactly is a SIB?

The easiest way to explain a SIB is that it is an arrangement between 3 people – an investor, the public sector (the “commissioner”) and an organisation which is tasked with delivering the desired outcome. The investor agrees to invest money, and that money is used to fund interventions related to a social issue. The investment is paid back by the commissioner to the investor, plus a return, if social outcomes are achieved to a pre-agreed level. The level of return increases with the level of improvement in the social outcomes. So, the arrangement looks like this:-

In short, it’s really a way for the public sector to ‘forward fund’ such projects (which has to be attractive in light of savage public spending cuts), and arguably it also allows the public sector to shift the risk. For philanthropic investors, it is easy to see that if a project is a success then it ticks various boxes, including the ability to direct their investment to projects which they want to support, and the benefit of a financial return in the event that the project achieves the desired outcome (though there is a risk that is the project fails to deliver, then the investors are likely to lose their money). And for the organisation tasked with delivering the service? Well, they are able to secure the funding up front without having to rely on financial support from the public sector.

There is no denying that the legal and contractual arrangements to set up a SIB-funded project are a little complex, but the nettle needs to be grasped (and models will inevitably emerge). If one stops to think, the scope for using SIBs is wide – there are a whole range of projects which could be supported by SIBs (where the outcomes are capable of being empirically measured). Improvement in health, encouraging people back into work, and early years care are just a few which spring to mind.

There are however some who feel that the whole concept is distasteful and that investing in a SIB is effectively investing in another person’s misery. This might be the wrong way to look at it. Charities and other social enterprises cannot continue to rely on public funding, and so they will simply have to find innovative funding alternatives. We know that SIBs are on the agenda of the Scottish Government’s Finance Committee, charities and their advisers are becoming more aware of SIBs and more and more SIB-funded projects are springing up. Momentum is gathering!

This is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser accepts no responsibility for the content of any third party website to which this refers. Morton Fraser LLP is authorised and regulated by the Financial Services Authority.

Contact: Lauren Scott, Associate, Morton Fraser LLP

E: lauren.scott@morton-fraser.com

T: 0131 247 1085

W: www.morton-fraser.com

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

It is important to recognise the distinct stages in any transaction. Taking a merger as an example, the first stage is where an approach is initiated or received, the second where initial talks take place, the third the decision in principle by the Board to merge. These stages  often only involve Board members and a handful of senior staff and are done on a strictly confidential basis. Some major elements of due diligence may be carried out at this stage – to check that there are no major barriers to the merger – but no detailed work takes place.

Once a decision in principle is taken and there is a public announcement of the potential deal, this is when the work really starts! A merger programme is set up, usually involving people from every department within the organisation, working towards the signature of the legal documents some months later and putting in place all the operational needs for day 1 of the new organisation. Some of the key areas in the merger programme are:

• Legal agreements, including the transfer agreement and any subsidiary agreements
• All external approvals required e.g. regulators, members, funders
• Due diligence on income and expenditure, assets and liabilities, staff, contracts, funders,
• policies etc
• Business plan for the new organisation including the vision and values
• People issues, TUPE and staff transfers, terms and conditions, pensions and potential
• liabilities, sites and offices
• Communications plan for external and internal audiences

Board member involvement is crucial not only in the initial stages, but throughout the process, to oversee the merger programme and resolve serious problems as they arise. Negotiations are often required in the latter part of a transaction and it is only Board members or trustees who can make decisions about the strategic future of the organisations concerned. A useful approach is to have a small sub-group of trustees who can carry out detailed negotiations when required during the process.

So what gives a merger more chance of success?

• Clear objectives and strategic rationale followed through
• Recognition of the importance of developing a shared culture and value set
• Regular communication – you can never have enough

For more information on managing mergers, have a look at the leaflet Dianne produced for ACOSVO – The Association of Chief Officers of Voluntary Organisations. Managing Mergers in the Third Sector Final 2010

Contact: Dianne Haley, Director, Haley Associates

E: diannehaley@ednet.co.uk

T: 07962 230898

W: www.haley-associates.co.uk

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

The Acquiring Business 4 Good programme has focused on developing partnerships across a variety of sectors. We have been working with Edinburgh University for a while now. The first collaboration was our research into Business Angels and Social Enterprise Investment by two MBA students last year (read all about it here). Yesterday we ran an event for the Business School’s EClub, managed by Jo Young.

Helen Chambers illustrating the issue of income inequality

The event was also a partnership with Inspiring Scotland and included speakers from the network of professionals we work with in AB4G. The topic was: Caring Capitalism – a new era of business for good. The role of social enterprise in today’s economy and society. The aim was to inspire the audience, primarily students at the business school, to consider how working with or for social enterprise could be an option for their careers.

Helen Chambers, chaired the event and made the case that without interventions that improve life for everyone in Scotland organisations will not only have less customers and stakeholders but fewer skilled employees. The figures she shared reflected the impact of the increasing income inequality in the UK. She suggested that creating social impact will inevitably help business and the economy at large.

Chris Horne, shared how working within private sector organisations can often impact society for good. In addition he reflected on his previous role as Director for Scotland for Pilotlight. Pilotlight effectively deploys small teams of senior business people  to support social enterprises and charities which are looking to grow.

Chris Horne highlighted the difference social impact can make.

Mary Duffy, challenged the audience to consider (amongst other points) the expectations and value around the issue of scale with social enterprise. She posed the two sides of the issue as scale is needed to make systemic changes in society but also some social enterprises are small and sit within communities delivering brilliantly for social impact without growing any bigger.

I shared some of my interest in innovation and developing entrepreneurship in social enterprises, of course mentioning AB4G. We included a variety of short videos about successful social enterprises and ran a short discussion on whether a gun shop could be a social enterprise.

Jo supported this successful collaboration and we hope it is the first of many encouraging students and others to enter the debate around social enterprise.

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

Do you have to keep a large, geographically dispersed team up to date with your merger or acquisition project?

Do you have a board which would like to monitor progress without being involved on a day-to-day basis?

Do you need external, independent professional advisers who are not part of your local community to support the deal but need a way to keep them up to date easily?

Do you have a mailing list for your deal that seems to vary and grow depending on the stage of the deal?

Do you need a way of keeping all email discussions and documents in one place where everyone can access the latest information?

For all these reasons plus a few more, we decided to trial 2 online project management tools during the AB4G programme:-

• Groupsite
• Basecamp.

Access to these online spaces has been offered free to organisations supported by the programme. We settled on Basecamp because it gave us the best options of support for the lowest price. Groupsite is also more of an online community space which we could offer through our LinkedIn group for free! And we separately deliver the project management support through Basecamp.

Both purchasers and professionals have commented on how useful it is to be able to keep everything relating to one deal in one secure, encrypted space. Also we have been told that it has helped keep fees down – which is what we all want isn’t it?

Basecamp has been used as a project management tool for a few years now and if you would like a free 45 day trial click on the button below:

I wrote a blog last December about people falling in love with a business and buying it: some of you may remember Christmas TV adverts starring Mr Victor Kiam, an American entrepreneur whose wife bought him a Remington shaver as a present and he loved it so much that he bought the company. However, beware. Even when the love affair is in full swing you still need to carry out proper ‘due diligence’ on the business before taking the plunge. Due diligence may sound like a bit of a passion killer, and indeed it sometimes should be: if you were in the market for a house and you spotted a beautiful cottage, with views to die for and roses around the front door, you’d still be well advised to have it surveyed. If the cottage had rising damp, inadequate foundations and needed re-roofing at great expense, the love affair would in all likelihood go cold when the cash had to be found to repair it.

Due diligence is really the business equivalent of carrying out a survey. If the business that you’re about to buy has tax arrears, messy and protracted litigation and a dubious insurance claims record, then you’d probably be well-advised to look elsewhere. Alternatively you could re-negotiate the price to take account of the cost of remedial work. There’s no point having roses round the door if the door is hanging off its hinges.

Also, if a business is missing things that can be easily resolved (such as a data protection policy, or written statements of employment terms) then you do wonder about less visible things, such as tax compliance. Using the cottage analogy, if the front door is indeed hanging off its hinges, it’s likely the plumbing and wiring aren’t in good condition either.

Finally, have the purchase properly documented so that if you do ‘move in’ and then find that the company you’ve just bought has the business equivalent of rising damp and inadequate foundations, you have a right of recourse. Ideally that would allow you to claim cash damages from the seller. Buying a business on the shake of a hand and trusting the seller to sort out any problems after the sale sounds nice in theory, but it’s very risky in practice, even with the most well-intentioned seller; so, in summary, take good legal and accounting advice and know exactly what you’re buying.

Contact: Austin Flynn, Partner, Morton Fraser LLP

E: Austin.Flynn@morton-fraser.com

T: 0131 247 1260

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

http://www.morton-fraser.com/blog/business_law/2037_as_a_sunderland_supporter-
my_christmas_came_early

Being aware of the different funding options available for community projects can make a vital difference. A common purpose allows separate funders to pull together. I have seen this recently on a community windfarm project where funding is being provided on both commercial and social levels.

Projects are expensive and it should never be underestimated how quickly costs can mount up. Ever heard Grand Design’s Kevin McCloud utter the words “ohh, it’ll never cost that much”? Inevitably the scene before the end credits reveals a substantial overspend, leaving me gasping in horror at the thought of those monthly repayments. Church halls, windfarms, sports halls etc are no different. Even with the best fixed price contracts, always ensure there is a reserve – no community wants left with a part funded project.

As commercial lenders are forced to tighten their lending criteria, the gap between project costs and available funding has increased. Communities will only have a finite resource available to them and so other options require to be explored to bridge the gap. A mixture of grants and loans can be combined to achieve this.

There are a variety of bodies lending to social enterprises and the collect and scatter approach can work well. The amount that one social lender can provide alone can be limited to set thresholds that cannot be increased but each chunk can provide a significant contribution. By ensuring that all social lenders are “on board” with the project at an early stage and are comfortable with everyone involved, this allows resources to be pulled and costs to be shared. For example, financial and legal due diligence reports can be carried out on behalf of a number of lenders, one valuation can be issued and overall control of the budget can be easier to maintain.

This has a direct improving affect on the cost of funds as although there may be a small percentage based arrangement fee payable to each lender, the project costs of each social funding segment will be proportionately smaller than it would have been if it were a sole funder. The main lender is also given comfort that the community will be able to provide the top up funding required by knowing that the social lenders are in the picture and that the funding pie can be complete. Food for thought indeed.

Contact: Kirsty Neilson, Associate, Morton Fraser LLP

E: Kirsty.Neilson@morton-fraser.com

T: 0141 274 1137

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

Businesses and social organisations have measured their economic activity for years, through preparing audited accounts and notifying Companies’ House or the Charities Commission so that others can see what they have measured. This provides data that can be used to demonstrate economic impact, such as how many jobs have been created, how much we have spent.

If we want to show how this data benefits our local community, we might want to specify how many local people have been employed and how much money we have spent with local businesses. A number of tools help organisations to do this such as nef’s LM3 approach.

The most recent development is to measure the purely social impact of organisations, trying to use the same underpinning approach of robust and independent assessment that a financial auditor would employ. Methods have been developed, including Social Audit and Accounting, Social Return on Investment and measuring distance travelled and these aim to quantify the intangible impacts that organisations have.

Questions such as:

• Are people healthier?
• Is the quality of life improved?
• Do people feel more confident?

These are often the things that we are trying to achieve through our activities but we have only measured the things that we can point at or count.

Increasingly, public service commissioners trying to buy services are asking providers to measure social as well as economic impacts of their work. The general public, aware of brands such as Fair Trade and Organic, are asking more questions about who benefits from how they spend their money.

So what do these issues mean in terms of measurement? We believe that all organisations, not just social enterprises, should measure their social impact and that they should be rigorous in how they do it, without adopting an over-burdensome approach. There are lots of methods to choose from and our advice is to make sure you find the right approach for your organisation and what you are trying to achieve. You don’t have to measure everything you do and not all at once and it is worth investing some time to make sure you have systems in place before you start to quantify the value of the changes that you make in people’s lives and communities.

To request a free copy of The Guild’s Guide to getting started in social impact measurement, email services@the-guild.co.uk and put sendguide in the subject line.
Blog: http://theguildsocialenterprise.blogspot.com/
Twitter @NickyS_TheGuild

Contact: Nicky Stevenson, Owner/Principal Consultant at The Guild (Eastern Region) LLP

E: nicky@the-guild.co.uk

W: www.the-guild.co.uk

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

Building a successful business is a complex scenario and depends on your successful management of a whole range of crucial tasks ranging from developing the original concept of the business, its products and services, through to the successful delivery of all of these, and for a profit!

Wow … that’s a lot going on … and then there is the need to sell and find new Customers, look after the existing ones, hire people, find premises, and manage accounting, along with HR and compliance issues – and you might want to get ISO accreditation and IiP too! No wonder you are in the office on a Sunday.

At times of organic growth, or growth through acquisition it may be that people resources are more of a limitation to your plans than financial resources will be. We all know where additional funds can be obtained, even if getting access to them now is a bit harder than it was possibly 5 years ago. But what about additional people to help you successfully manage and prosper through periods of growth and integration?

In recent years, the UK has seen a growth in Interim Management service providers and the trend appears to be rising. Bringing experienced people with a proven business track record into your business could just give you the edge to deal with periods of high operational activity or to supplement your own Team through the process of an acquisition. Interim Management provides ‘hands on’ resources to actually do work on your behalf and work with you to address items which otherwise might remain on your ‘to do’ list.

Delivering targeted results against a pre-agreed Workscope and timetable means that engagement with an Interim Manager will be a contained cost to your business and the Interim can be ‘released’ at the end of the Workscope or retained against a new Workscope, as you wish. No upfront costs, no open ended agreements, and importantly no cost to you to end the arrangement.

Importantly too, the Interim Manager will have experience and a track record either in one area of specialisation or across the spectrum of running private businesses, so you will not only get your jobs done well, but also benefit from their experience in similar scenarios from their past.

Good people, available as you need them, when you want them, on a ‘per day’ basis, with no strings attached, no catches, and no cost beyond your need should be an investment for your business rather than a cost to it.

Interim Management – providing ‘hands on’ resources as you need them.

Contact: Brian Sherret, Managing Director, GHRL

E: b.sherret@ghrl.co.uk

T: 01667 451595

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

Here’s the classic family business problem – Global studies show that around 75% of family business owners want their children to own the business, keeping the company in family hands. However only 30% manage to achieve this succession.

These statistics are common knowledge in the family business world, however there are no corresponding stats about why there is the huge gulf between the vision and the end result. Anecdotally we know that succession planning in family enterprises is a complex, emotional and messy matter. We also know that large numbers of the next generation in a business-owning family have their own dreams, which often don’t include continuing mum or dad’s life interest in the business.

So what happens to these family businesses which don’t flow from one generation to the other? Most commonly they are sold to third parties, usually competitors who are looking to expand their market share, sometimes to a management buy-out, much less commonly they sell the business to their employees as a whole. Some family businesses fail during the often turbulent years of transition from one generation to the next. And some just shut up shop, cease trading.

This might seem a minor footnote in the big complex world of business, and an even tinier footnote for society. But this would be to fail to understand something very important. Family enterprises are 73% of all the businesses in Scotland, and 80% around the world. They employ half of the private sector workforce, almost a million men and women. And the create 45% of our GDP. So what happens to family businesses is very important to all our lives.

Moreover family enterprises have a character quite unique in the world of business. Each is different, but the vast majority have close relationships with employees and the local community where they are based. Often they are quiet, secret philanthropists, and are usually involved in keeping going the local football team or similar socially-important organisations. This is what makes them of potential interest to social enterprises. There’s an overlapping set of values.

Clearly not all of the 85,000 family businesses in Scotland are ethical and kind-hearted but you’d be surprised how many are. And if a family business owner can’t pass on their business to their children then many would welcome an approach from a group which believes in keeping jobs locally, and building the social capital of the community.

So I’d suggest to social enterprises that they increasingly step out of their own arena and cultivate relationships with local family businesses. You never know who might be looking to sell their business at any given time, and if you make it known you are looking to acquire you might just find a classic win-win

Contact: Martin Stepek, CEO, Scottish Family Business Association

E: martin@sfba.co.uk

T: 01698 723 346

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.

The Bribery Act came into force last year and created the new offence failing to prevent bribery meaning that the UK has the most stringent and far reaching anti-bribery laws in the World. This offence can be committed by any incorporated body which is commercially active. Having charitable status, making a profit for charitable purposes or being non-profit making does not exempt you from compliance.

The Bribery Act is another compliance area which social firms must consider.

Recently there have been several successful prosecutions of companies in relation to bribery and corruption resulting in significant financial penalties and reputational loss, with individuals being sent to prison. Social Enterprises must also be aware of the devastating impact that any suggestion of corruption could have on funding.

The regulators will use their powers under the Act to demonstrate to the World that they are taking their international legal and moral obligations seriously. The first prosecution has already taken place – in relation to an individual employee of the Court Service who was sent to prison for six years – but regulators are actively investigating allegations of bribery by commercial organisations now.

Often anti-bribery measures focus on involvement with public sector officials, and while this issue remains high on the agenda, the Act also criminalises bribery which involves transactions between private companies, including commercially active charities.

The offence of failing to prevent bribery is a strict liability offence, meaning that you can be found guilty of the offence in ignorance of the bribe having been made or received by your employee. The defence is that you had “adequate procedures” in place to prevent bribery and corruption. The basic principles are that organisations should risk assess their exposure and ensure that they have suitable policies and procedures to address that risk. Staff must be aware of these policies and they should be monitored and updated as necessary.

Organisations should consider the following for employees and trustees:

• Code of Conduct in relation to gifts, entertainment and hospitality;
• Transparent register of gifts, entertainment and hospitality;
• A whistle blowing policy; and
• Penalties for breaching the policy

You as a business are best placed to identify areas of exposure to risk and how best to tackle them. You should consider seeking professional advice if you have any questions.

Contact: Laura Irvine, Associate

E: lji@bto.co.uk

T: 0131 222 2940

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.