Why would a social enterprise, or even a charity, buy a business? And not just any private business but a profitable one that is ready for expansion and growth. I think the better question is – why wouldn't they?
Given social enterprises develop community-based sustainable businesses across Scotland, perhaps a new route to growth is the transfer of ownership of a private business to the community. This belief is the basis for Acquiring Business 4 Good, a pilot programme funded by the Big Lottery Fund and run by Social Firms Scotland. We're investigating how business acquisition is and can be used to grow the third sector across Scotland and we particularly want to find out about developing social firms in this way.
Social firms, in particular have simply not found a business model that can create the volume of jobs and profit margins to compensate for higher costs associated with supporting people with barriers to the labour market to gain and retain work. Acquiring private businesses and converting them to social firms offers one way of achieving this since the business is in existence, the market is there and it just might be easier to access investment.
Let's be clear though, there's no risk-free or cheap way to grow an organisation. Nonetheless, we now know that there is an appetite for business acquisition so it does have a place in the third sector's strategies for growth and sustainability. In addition to, for example, start-up, franchising, replication or joint ventures, it's really just another step along a continuum of growth options for an organisation seeking to deliver social outcomes through commercial activity.
On the supply side, let's consider the family business sector in Scotland. There are over 60,000 family owned firms, employing over 50% of the private sector workforce, yet only 33% of family firms make it to the second generation and 9% to the third – potentially a massive loss to the Scottish economy. According to Martin Stepek, chief executive at the Scottish Family Business Association (SFBA), one of the main reasons for this is succession.
Through this new programme, we've been fostering an innovative partnership with SFBA that could demonstrate how family owned businesses and community based organisations and social enterprises could deliver real benefits for local people and the local economy. Family businesses tend to be well rooted in their communities and have similar supportive working environments to social businesses. Given the succession issues they also face, this sector offers an important route to finding suitable businesses for buying and converting to social enterprise. Acquisition also presents an alternative succession model which goes far beyond any corporate social responsibility programme.
We've been slow to seize such opportunities in Scotland. Social enterprises and community organisations that want to continue to deliver their social mission need to finance it differently and thus have access to a range of investment options and growth strategies and acquisition does provide another model for growth worth considering.
Pauline Graham is board director at the Scottish Social Enterprise Coalition and chief executive of Social Firms Scotland.
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