As the third sector’s Cinderella services struggle in the face of cuts social landlords have the opportunity to ride in like the proverbial prince and
The coalition government’s cuts are starting to create some real opportunities for social landlords seeking either to bring diverse organisations into their groups or to provide wider services themselves.
These come from third sector organisations which are facing challenging financial situations because they have limited, or no, assets and do not have external funding arrangements or significant cash reserves to rely upon. Right now, landlords are working alongside ‘Cinderella services’ such as Supporting People and employment training services - so called because they are often neglected and denied the resources to properly flourish. These third sector organisations have suffered massive revenue cuts in a short period meaning some are in financial peril while others are facing a future in which their operations are significantly reduced. There are therefore two opportunities for social landlords to: bring the organisations into their groups, or provide the wider services themselves.
The opportunities for registered providers
Many of these third sector organisations contain healthy core businesses. But to remain competitive, above all, they need time to restructure workforces and deliver efficiencies. Inevitably, this will mean consolidation, which will create significant opportunities for those that survive the short-term challenges.
A real-life example of the potential benefits of landlords taking on some of these services is a client that, as part of its group, set up a registered charity focusing on providing Supporting People services. In the last 18 months, the charity’s turnover has grown from £8.5 million to £14.8 million simply through it successfully bidding for Supporting People contracts by restructuring the service to be provided. It is now well positioned to survive the cuts due to its significant market presence and ability to work across contracts.
There are numerous factors at play and many of them are not in your control. However, timing is critical and proactive third sector organisations are currently completing wholesale reviews of how they provide their services and what they need to look like in the future to be sustainable.
Many of these third sector organisations are being courted actively by princely social landlords motivated by a desire to diversify their activities and/or the realisation that if these Cinderella services fold then it will be their residents who will suffer.
The traditional group structure model (comprising social landlords and trading companies alone) is therefore having to adapt to embrace these opportunities. We are currently not only seeing social landlords joining group structures, but also numerous charities and social enterprises either joining up with or being formed by social landlord groups to provide diversified services.
How to get started
While it will depend on individual circumstances and your own strategic goals, here is a quick checklist for when you are talking to possible third sector partners:
- Is there a strategic fit? You need to be focused about who you talk to. As a minimum, you should be looking to see if you share three key factors: objectives, ethos and values. If you don’t have these then stop talking - trying to force a fit won’t work in the long run
- Is there a quality service worth preserving? Many good quality organisations have realised a future as an independent organisation is not practicable. This is different to an organisation that is in financial difficulties and has no distinctive offering. If its reputation with its service commissioners is in question then this may be enough for you to say ‘no’
- Are there any skeletons in the cupboard? Rather than engaging in wide-ranging (and expensive) due diligence exercises, concentrate on the key risks to the business and what you consider they have that is distinctive. Digging deeper in these key areas will either help you gain confidence in them or make you question whether their quality of service will match their rhetoric. Remember, you won’t be able to rely on warranties to protect you with third sector partners if you miss something business critical
- Who’s in charge? Some organisations will want more influence and power than they should realistically expect in a group context so be careful not to over-promise. The amount of work to deliver a new organisation into a group is significant so make sure the return and opportunities are worth the resources and time investment
Whether or not this is too risky an approach depends on your perspective. Do remember that, unlike multiple social landlords in a group, there is no requirement for social landlords to stand behind group charities, social enterprises and trading companies. This means you do not need to rescue failing businesses in your group. However, in some circumstances, where the risks are too great it may be better to return to the other approach of providing the diversified services yourself.
Peter Hubbard is a partner at Anthony Collins Solicitors