Understanding the financial impact of Power to Change’s grant-funding on community businesses

Power to Change aims to support and strengthen the community businesses sector across England. This research paper emerged from the need to better understand the financial impact generated by Power to Change’s investment in community businesses. In other words, several years after Power to Change’s investment, what has been the financial impact of the Community Business Fund, Trade Up and Bright Ideas programme on their grantees?

This research explores what growth means for community businesses using two key financial metrics for this research, to draw conclusions on community businesses’ financial sustainability and resilience: (i) total revenue income, and (ii) earned income as a percentage of turnover. The research equally acknowledges that a positive financial impact on community businesses does not mean that all metrics increase at once. For instance, a community business could acquire a building through Power to Change’s funding, meaning its fixed asset value would increase. Earned income would grow later, once the community business starts trading from the newly purchased building. Therefore, this paper explores the relationship between different metrics including fixed asset value, contribution to reserves after interest and tax, long-term debt, working capital as a percentage of turnover, and fixed assets to turnover percentage.

Measuring community business growth can be complex given the number of factors that should be considered, especially since the growth may not be necessary linear. Hence, the research uses three approaches to data analysis, providing insight from different perspectives to give a comprehensive view of the financial impact of Power to Change’s programmes: (i) multi-year trend, (ii) multi-year key factor, and (iii) growth pre- and post-investment.

Key findings

Community Business Fund

The Community Business Fund programme, overall, had a positive impact on earned income growth (in cash terms and as a percentage of turnover), which means that it achieved what it set out to do. The programme also had a positive impact on the growth of turnover and assets (both in cash terms).

• The median earned income percentage increased over the period from 72% to 78%.
• Two-thirds of grantees achieved an increase in total fixed assets of around 40% after receiving funding, despite a decrease of about 4% prior to the funding.

Trade Up

The Trade Up programme had a positive impact on community businesses’ capacity to generate earned income and on their fixed asset values, despite some organisations not maintaining their ratios of earned to grant income as they grew. Given that the programme focused on earned income growth in cash terms, rather than as a proportion of the overall business model, it can be said to have achieved its goals.

• Median revenue income rose by over 50%.
• Half of Trade Up grantees maintained a high rate of earned income (80%) and achieved growth in total fixed assets by 94% after receiving funding, despite the drop of 10% they experienced beforehand.

Bright Ideas

The Bright Ideas programme had a positive impact on the business models of participants even though some did not quite maintain the earned income proportion of their overall business model over time. Given that many of these organisations were established as legal entities during the course of their participation in Bright Ideas, this is a promising start.

• Median revenue income increased by almost 50%.
• Total and median fixed asset values rose in all sectoral groups with the exception of employment and education.