Earned income or trading

In the last few decades, there has been a major shift in funding for voluntary and community organisations, away from simple grant dependency towards earned income or trading. The straightforward funded and funder relationship has changed to that of ‘providers’ and ‘purchasers’.

More recently, there has been increasing pressure on the Third sector to work more ‘entrepreneurially’ in developing new income streams. There is a range of commercial activities available to voluntary and community organisations. The main ones are:

  • Providing a service under a contract with another agency, usually a local or health authority
  • Charging service users
  • Selling products made by the beneficiaries of the organisation
  • Selling publications, training, consultancy and other in-house expertise to interested parties
  • Unrelated trading, like selling charity Christmas cards or running charity shops

Trading activity is often referred to as ‘social enterprise’. Social enterprise is not only a type of organisation but also an activity that Third sector organisations undertake to generate profit. Most social enterprises receive over 50% of their income from trading. Community based social enterprises seek to provide sustainable economic activity in ways which ensure that the money and benefits from such activity flow directly back into the locality in which the social enterprise is based.

Clearly, there are major benefits to having a secure, independent and sustainable revenue stream. There are no strings attached, unlike grant funding, and you can use the money as your wish. However, earned income or trading may also bring problems and challenges, not least the danger of losing the organisation’s original vision.

If trading is outside an organisation’s main purpose, then there are also charity and tax law implications. Organisations wishing to set up trading activities will also need to keep abreast of various financial and legal issues.

It is therefore essential to get thorough advice before embarking on generating income through trading or contracts. Local county for voluntary councils (CVCs) and WCVA can provide support, whilst many areas now have their own social enterprise development agencies.

Useful resources