The Challenge of Financial Sustainability in Social Enterprises
Financial sustainability remains a significant challenge for many Voluntary, Community, and Social Enterprise (VCSE) organisations. While a growing movement encourages VCSEs to diversify their income and adopt a more enterprising approach, making this shift is not always straightforward.
One of the key hurdles is confidence in describing an organisation’s overall business or revenue model. Many founders are driven by personal experiences with social challenges, and the ‘enterprise’ aspect of social enterprise can feel unfamiliar. Additionally, balancing multiple income streams—grants, donations, contracts, and trading activities—adds mulitple layers of complexity, making financial planning more daunting.
This is where effective organisational support becomes critical. A thriving social enterprise sector requires strong infrastructure organisations that can provide technical, financial, and operational guidance. This support is especially crucial for enterprises operating in areas of market failure or serving communities that cannot afford market-rate prices.
Developing a Shared “Vocabulary of Business Models”
Through discussions with partners and insights from the Enterprise Development Programme (EDP), a clear need for a shared understanding and language around business and revenue models has emerged. By developing this ‘vocabulary of business models’, organisations can better articulate their strengths, challenges, and the investments needed to scale sustainable trading activities growing and deepening social impact. Achieving this shared understanding requires commitment from funders, support organisations, and VCSEs.
What We Learned from the EDP
The Enterprise Development Programme was designed to strengthen charities and social enterprises by helping them build trading models. Over five years, the programme supported more than 300 organisations across six sectors: Black and Minoritised Communities, Environment, Equalities, Homelessness, Mental Health, and Youth. This support included enterprise grants, technical assistance (advice and support, including from specialist accountants), and peer learning opportunities to help VCSEs develop and grow their enterprise and trading models.
One of the key takeaways was the variety of revenue models adopted across different sectors. To identify trends and challenges, we employed a tiered approach:
- Initial Analysis: Reviewing publicly-available financial data across all sectors.
- Detailed Sector Analysis: Examining financial trends within the EDP cohort.
- Deep Dives: Conducting case studies on specific trading models.
The consultancy firm My Cake was commissioned to analyse accounting data across the six sectors and Social Investment Business (SIB) contributed insights based on its role as the Grants Management Partner. These combined efforts provided a clearer picture of trading activity trends and sector-specific financial challenges.
You can read the sector-specific analysis here:
Overcoming Financial Literacy Barriers
A major barrier identified was a lack of confidence in financial literacy, particularly when it came to understanding and leveraging financial data for decision-making. Many EDP participants lacked senior financial staff making it difficult to engage with technical revenue model discussions or due to their size or early-stage struggled due to limited capacity. Those who participated in specialist financial support through the programme significantly improved their financial literacy.
In retrospect, more could have been done to understand this lack of confidence given the importance of financial literacy in achieving organisational resilience. We also could have supported our sector partners more in their engagement with the revenue models work especially as, for some of the partners, it was their first time supporting organisations with enterprise development.
The Need for Long-Term Revenue Model Analysis
Because many EDP participants were still piloting or developing their enterprise models, financial data was often limited, making it difficult to track long-term revenue trends. As a next step, more in-depth analysis of mature trading activities will be essential to build on these initial findings.
We also plan to collaborate with networks such as the Enterprise Grants Taskforce to amplify this work and integrate revenue model understanding into future enterprise support programmes.
Conclusion: Strengthening Financial Confidence for Greater Impact
The EDP’s exploration of revenue models has provided valuable insights into the financial challenges and opportunities across different VCSE sectors. A key takeaway is the need to develop a shared vocabulary of business models to help organisations and funders alike understand the financial realities of social enterprises.
By fostering confidence in financial analysis and continuing to share lessons learned, we can empower charities and social enterprises to build sustainable trading models. This, in turn, will strengthen the resilience and impact of the VCSE sector.
The full EDP programme evaluation will be published in the coming months, providing a deeper dive into these insights—stay tuned!
