Business Finance: John Matthews on the challenges of launching a ‘spin-out’ social enterprise

WE ARE currently in a “Brave New World” where public service providers are looking at the services they offer to see if they might be better supplied by social enterprises or spin-outs.

Certainly in Suffolk we have seen the spin out of several services already including the libraries, parts of the adult care services and academies.

But this is an area with big challenges. Can a newly formed social enterprise be sustainable? What are the risks of failure? And, if the new entity does fail who picks up the tab for the service to be taken back in house?

Consequently, it is essential that any prospective “spin-out” goes through a process of careful planning, which needs to consider the following:

: : What structure should be used? There are many options, including Co-operative, Company Limited by Guarantee, Community Interest Company or Industrial & Provident Societies, and all stakeholders, from both sides of the fence, need to understand and be comfortable with the one chosen.

: : What funding and contracts will be made available to the new enterprise?

A business plan should be prepared and some form of Due Diligence would be good practice. A pre start up review of VAT implications and registration is a must.

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: : Are the right management skills in place, or will support have to be bought in?

: : TUPE is also big consideration.

We have been party to a number of conversations with those looking to take on a service and spin out from public services and we have had conversations with those representing the public services.

A common phrase in the conversations is “that you don’t know what you don’t know”. Therefore, any pre-start up and early stage advice is invaluable.

Profit is not a dirty word. If the new enterprise is able to make a profit through extending the services or managing cost saving then this can be reinvested in expanding the services on offer.

At the end of the day, all parties concerned are looking to create a viable, sustainable enterprise.

New social enterprises have the opportunity to create a new dynamic in the provision of services. Careful planning, investigation, business plans and appropriate due diligence are essential to help towards creating a sustainable enterprise.

For further advice and support on spin-outs and divestments please speak to John Matthews on 01473 220022 or email john.matthews@ensors.co.uk .

: : John Matthews is a partner at Ensors Chartered Accoutants.

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