The world of business entities can be quickly divided into three super categories: for-profit business, charities, and community interest companies (CICs). CICs straddle the line between a pure charity and a for-profit business.
A CIC can make a profit, but the bulk of that profit must be used to benefit the community. They can apply for and receive charitable grants, including from the government, to assist their community service programmes, but it’s expected that they will make the majority of the funding through the sale of a product or service.
One of the biggest questions that we get at KG Accountants is, “How can I make my CIC successful?”
The people who set up a CIC are looking to make the world a better place. Whether it’s protecting a section of rain forest, fighting to improve the climate, feeding refugees, or building a school in an area that needs one, CICs are founded to do good things.
This often causes people to treat a CIC like a charity. They think in terms of doing good.
This can create a problem for the CIC in the long run.
The Business Mindset
The best and most effective way to start and run a CIC is as a business.
Here’s a motto that every CIC should live by: We need profits to do good. Running a good business makes for great profits.
Starting at Step One
There’s a lot of paperwork to starting a CIC, but the one thing that you aren’t asked about is a business plan.
Every CIC should have a business plan just as one would create for a for-profit business. The business plan will detail the community benefits that the CIC will work toward, but should also talk at length about the business end.
- What will the CIC sell? A product? A service? A mixture?
- Who is the audience for the product?
- How will sales be made? Online? Brick and mortar? Through third parties? All of the above?
- What will the product cost? How much will it sell for? What’s the profit margin?
- What are the expected revenues for each year for the next five years?
- What is the marketing plan?
- How will the CIC reach its target audience?
- How will the product be produced?
- What staffing will be needed to deliver the service?
In other words, the key to starting well is to start a CIC as it was a for-profit business.
Any look at a list of CICs will show you that their main focus is the community service aspect of their work. There is usually very little in the initial look that will tell you what they sell. If you approach setting up a CIC with the idea that the means will lead to the ends, you’ll be much more successful.
If your business plan is strong and you’ve chosen a product or service with a wide appeal, you should expect growth as any other business would.
You’re able to fund this growth through the same avenues as a for-profit business:
- Saving up profits and using those assets
- Borrowing funds against the company’s assets
- If you set up your company for it, selling equity shares
As part of your business plan, it’s helpful to consider the next stages of growth, at least a bit. Talk about a need for a new store or expanding to an international market. Whatever your CICs expansion might look like, it should be included in the projections for your business.
Staffing and Success
No business succeeds just on the merits of its existence. There is always a staff that has to deliver the product or service. For the smallest of CICs, that’s the founder and maybe a few family members. For larger ones, there’s a paid staff and often volunteers.
If you look online about some of the complaints about CICs, there’s the idea that volunteers will work for years, not getting paid, and that the founders and owners will make a lot of money. To avoid this, the easiest thing to do is be transparent. Report the owner’s income and anyone else who is getting paid. It’s important to keep salaries in line with the job market, but not to be too generous.
A short note about Managing Director/Owner salaries: There has been a wave of anger at CICs and charities that pay their leadership outrageous salaries. The excuse is often, “That’s what they can make in the private sector and we need to be competitive.”
While that reasoning is sound on its face, it doesn’t work for all of the volunteers who could be making more “in the private sector” as well. There’s a belief that if someone is working for a community interest company or charity, that interest should be reflected in their salary.
Keep executive salaries lower than the private sector. It should be a livable wage, but it shouldn’t enrich anyone.
Profits and Goodness
Many great CICs have proven that it’s possible to mix profits and good deeds. In fact, this will probably be one of the major corporate structures in the future as consumers opt for businesses that are doing good while doing business.
With a great business plan and a clear focus on making the money needed to accomplish the mission, you can set your CIC off on the right foot.
At KG Accountants , we provide a cost-effective, high value solution to meet all of your CIC needs.
All our CIC fees are fixed.
By giving you a fixed and competitive price, we can take the worry away when it comes to running your CIC; allowing you to concentrate on running your organisation.
Arrange a FREE CIC initial consultation.
Call us on: 0207 953 8913
Categories: Charities, CIC, Community Interest Companies
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