Spending locally is only half the story

Local businesses are hugely valuable and vital assets to any community. There is a very strong push at the moment for spending locally, and we wholeheartedly support the endeavour, but is there more we can do to the shop local process to keep a local economy fiscally sound and afloat?

Olivia lives in the BCP and is a huge advocate of the shop local movement. She believes that by buying from local businesses her local community will benefit, and to some degree she is right. What Olivia doesn’t think about is how the local business spends money.

Where spending locally actually goes

For a local business to survive in the modern world it needs to engage a number of different systems and services from POS (Point of Sale) and inventory management, all the way to customer relations management, engagement, e-commerce and so on. The problem, as we can see from the diagram above, is that for 99.9% of local businesses, these required services are not provided by a local supplier.

When running a local business margins are incredibly tight. As a result, owners often have no choice but to use national or global service providers for each of their required services because it’s cheaper, or in some situations the only available option. If local service providers do exist, their margins are just as tight, so their offering is often a more expensive option when compared to their national/global competitors.

Sadly, spending locally doesn’t guarantee that much of your money will genuinely find its way into the local economy. We call this problem the Extra-Community Money Bleed or (ECMB). The drive for global connectivity has some very clear negative side-effects that are conveniently swept under the carpet, and it is local economies and communities that suffer as a result.

There is a solution

The solution is not complicated, but it requires a cohesive community effort to be achievable. A local community needs to wholeheartedly buy into the concept for it to have any chance of success.

How a local community should set itself up

To reduce a local community’s ECMB, it needs to have local service providers that can at least match, but preferably beat national/global competitors on price, efficiency and effectiveness. The easiest way to achieve this is by looking at it from a wholesale point of view. A single service provider that can offer all of the services a local business requires to make sales and stay profitable is the solution.

You probably spotted the phrase Cloud-based Local Platform in the diagram above. The importance of this phrase should not be lost on you.

In the modern economy, if a local business is not taking advantage of the cloud it will struggle to be agile and dynamic. Cloud-based services give a business owner access to real-time data, analytics that they desperately need in order to thrive, as well as the ability to manage and affect engagement on a minute-by-minute basis.

The new local service provider (LSP) must be a platform. It’s natural for a business to want their own app(s) when interacting with their customers and would therefore shy away from using a platform. What’s more important is the perspective of the consumer. Consumers don’t want thousands of apps on their phones for each local business they engage with on an ad hoc basis, it’s just not practical. A platform is the only solution, because it sets a standard on how to do things that all businesses adhere to, and consumers become familiar with.

Revenue Reinvestment

The described solution above is useless if the new LSP isn’t set up in the correct way. While it’s not a nice thing to say, we should never underestimate the fallibility of humanity. The new LSP has the propensity to generate a very large amount of revenue via the local economy, and this needs to be protected properly.

A private limited company is not the solution. There are no checks and balances on what it can do with it’s revenue, so it’s not a safe option. A charity is also not the solution. It cannot provide the services the LSP needs to offer to local businesses to work.

The new LSP must be a Community Interest Company, limited by guarantee. It has the flexibility of a private limited company while being asset-locked like a charity. It is carefully regulated, but not restricted by bureaucratic red-tape.

Correct business structure for LSP

The aim of the LSP is to reinvest all revenue (less costs) back into the local economy. It’s not designed to become a national or global powerhouse and conquer the global economy.

You will note in the diagram above that the LSP doesn’t directly reinvest in the local economy, because that presents a taxable opportunity. Instead it donates the entirety of its revenue (less costs) to a managed charity that in turn reinvests it into the local economy in the form of grants.

This ensures that the maximum possible amount of revenue is directly reinvested where it’s needed, in quantities that can actually make a difference.

When an LSP is not geared towards increasing its own profit, it can drastically reduce the costs of its services to its clients. This means local businesses reduce their costs immediately. By providing a full range of services for local businesses it can reduce those costs even further, by taking advantage of the wholesale theory.

Why should a community utilise this concept?

If you’re asking yourself why your local community should utilise a concept like this, you need to take a good look at its structure.

If we consider the BCP as an example, approximately 50% of the labour pool is employed in hospitality, care and manufacturing. These are all low-income, high turnover, low satisfaction industries. These residents do not have large disposable incomes, so local businesses have to increase their reliance on an extremely volatile and fractious revenue channel, tourism.

There is strong interest from all parts of the community to encourage and entice investment in other industries to make the local economy more balanced and give local residents more purchasing power. The problem is that every community across the UK is trying to do the same, and getting hold of external investment, whether privately or in the form of public or charitable grants is too difficult.

The money a community needs to invest in its future is, ironically, already inside of it. It constantly bleeds away out of the community via local businesses who are forced to buy and rent services from global providers.

Restructuring the costs local businesses have by feeding them through a single local pipeline will accumulate the revenue required to fund the necessary investment in the BCP.

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