As many as 4,000 social enterprises are likely to stop operating this winter due to huge financial pressures, new research has revealed.
Social Enterprise UK’s (SEUK) quarterly Social Enterprise Barometer report found that social enterprises across the UK are increasingly faced with high operating costs as a result of the cost-of-living crisis.
SEUK surveyed 222 social enterprises last month to understand how the impact of inflation, high energy prices and the rising cost of living have impacted their financial health and growth.
The report said: “Across all indicators of social enterprise business health, we see signs of significant strain over the last quarter. Cashflow and reserves positions have worsened, turnover and growth expectations are down, and staff numbers have declined – although we see through qualitative responses that little of the reduction in staff is redundancy, it’s largely people not being replaced.”
‘Significant strains’ on the sector
Some 3% of respondents said they expect to close in the coming months. When applied to the estimated 131,000 social enterprises that operate in the UK, this represents 4,000 organisations.
Rising costs, notably higher energy prices, are particularly worrying for the sector, with just over six in ten respondents seeking new grant funding to deal with the increases. Meanwhile, some 22% reported needing help to pay their energy bills.
The majority of respondents (68%) said that their operating costs increased in the last quarter while nearly three in ten reported significant increases.
Over one in ten (14%) decided to reduce spending on essential inputs and services and 11% cut product or service range or delivery.
More social enterprises are also dipping into their reserved and have reduced cashflow. Almost half of respondent have seen their reserves in the bank fall, while a quarter are using reserves. A third of large organisations with turnovers over £500,000 reported drawing on their reserves to sustain their operations.
One respondent commented: “It’s horrendous at the moment. Contracts are drying up, grants are ultra-competitive, and no-one is buying.”
Another wrote: “There is so much uncertainty, we just don’t know. Services provided by our members become less important than putting food on the table [...] Our membership fees become less important than heating bills. It’s a really tricky time.”
Reduced income and staff numbers
An increasing number of respondents saw their income drop significantly in the last quarter compared with the previous one.
Similarly, fewer reported significant growth when comparing both quarters. Only 5% said that their income grew significantly in October against 10% in July.
The report noted that social enterprises in the devolved nations show the strongest income positions. “A higher proportion are reporting that turnover levels have remained static, with slightly more respondents than last quarter reporting slight growth,” it added.
On the workforce, the number of paid employees decreased significantly compared with the previous quarter.
Small social enterprises took a big hit, with 21% reporting a decrease in staff number. The report said that staff reductions are “not primarily redundancies but staff not being replaced when they leave or when funding for their positions comes to an end. “We are also seeing some social enterprises having to reduce staff hours,” it added.
“There has been a particularly big drop in staff numbers in the devolved nations compared to July 2022, with 35% fewer social enterprises having increased their staff numbers this quarter. Social enterprises in the South of England have seen a 17% increase in the proportion that have decreased staff over the last quarter.”
SEUK: Government support needed now
Peter Holbrook, chief executive of SEUK, said: “It’s clear from this report that the combined crises surrounding energy, inflation and recession have many social enterprises concerned for their future.
“Our past research has shown that social enterprises prove more resilient to economic challenges than other businesses, so the degree of strain social enterprises are experiencing demonstrates the scale of the difficulties they’re facing.
“Most social enterprises work with people directly affected by the rising cost of living and they themselves need government support to brace for the barrage of economic and financial instability.”
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