As managing director of Lampton 360 and as a founding member of the LATCo Network, I was asked to provide some advice regarding the income generation potential when considering setting up a Local Authority Trading Company.
Firstly, it is vital to have a clear view as to what you want the LATC to do. It is important to ‘begin with the end in mind’ (7 habits of highly effective people). The the first step is to develop a clear vision and to have identified the areas of activity that you believe would benefit most from the creation of a LATC.
As a next step, develop a business case that explores a range of options. These should include the services that could lead to income generation, what the prevailing market conditions are, what the benefits would be and how each approach fits with your council’s policies. This would enable you to prepare a strategic case that sets out a range of choices that can be refined through discussion and negotiation. This would then lead into the development of a business case for your chosen option(s).
Determining the most suitable operating model should be part of the options appraisal in the strategic business case. There are a number of different models ranging from wholly owned companies (which are the most common) to joint ventures and social enterprises. The factors that help determine the most suitable model should consider:
- Attitude of the council to risk and reward.
- Do you want to build in flexibility to expand e.g. open shareholding to neighbouring council with a view to sharing services and to deliver economies of scale?
- What sort of structure will deliver your strategy? Are you looking to create several independent LATCo’s or a group structure to support the addition of other subsidiary companies?
- Which model affords the most suitable cultural fit with the council?
- What level of control does the council want?
Once these questions have been answered, you will be able to identify the advantages and disadvantages of each approach to deliver your vision as there is no one size fits all.
There are potential longer term advantages in setting up a Local Authority Trading Company. By creating a company with a strong brand image and with a strong customer base coupled with an efficient service offer, a continuous source of revenue for its shareholder via either efficiency savings and/or profits generated will be a constant. I am sure that there will be more collaboration across LATCo’s and/or local authorities as the drive to provide better public services in different ways gathers momentum. Given the collapse of larger commercial organisations that have provided services to the public sector, there are lessons to be learned from over-stretching the service offer to sound financial management. Keeping money within the public sector for the public sector is the way forward rather than it being used to line the pockets of corporate shareholders.
As my company is still young i.e. less than 3 years old, we have not made significant financial returns to our shareholding council although we have saved them in excess of £1m p.a. on a new service contract over the first 14 months of operation. This was money that previously was leaking into the coffers of a private sector provider. We expect to be growing our recycling and waste collection offer in the coming months which will see us making financial contributions to the shareholder over the next couple of years. Research suggests that savings/profits take around 18-36 months to start to materialise in a new LATCo given some of the changes that have to be gone through. These include shifting the culture, introducing smarter ways of working and managing that change.
I am sure that other local authorities once they begin to explore more thoroughly the opportunities and advantages of creating their own LATCo’s we will see more commercial thinking. This will lead to driving efficiencies and deriving financial surplus back into the public sector system which, in turn, will see councils being able to make more flexible spending choices for the benefit of their communities.
The LATCo Network is the first membership organisation founded by LATCo’s for LATCo’s providing a sector voice & support for our members delivering commercial public services.
Dave Ward, Managing Director, Lampton360 ltd and LATCo founder member will be speaking at the LATCo Summit the inaugural 1day conference that brings together forward thinking, commercially minded Local Authorities, LATCo's and other public sector, not for profit and commercial organisations working in and around this sector as enablers.