Co-operatives UK has published a paper called Sticky money which “provides guidance for co-operatives on using the LocalMultiplier 3 tool to evaluate their local economic impact, using the Lincolnshire Co-operative Society as a case study to illustrate the process. LM3 is a tool that enables organisations to measure the impact they have on a local economy by tracking where the money they receive is spent and re-spent.” The paper was written by Justin Sacks of K2A who has also written a handbook called The Money Trail.
The paper describes how the multiplier works and Lincolnshire Co-operative Society has shown how they have used it to work out their impact. The three-stage process is based on measurements described in the paper as:
• Round 1: Calculate your organisation’s turnover less VAT
• Round 2: Calculate how your organisation spends its turnover in the local area
• Round 3: Survey suppliers and staff to calculate how much they spend in the local area
These figures are used to work how the income generated by a business can in turn generate more income for local businesses and people thereafter.
Basically the three calculations are made as described above and then turned into a ratio to calculate the score:
Round 2 + Round 3
The paper points out that the round 1 calculation will be straightforward but round 2 does require that you decide what ‘local’ means for your organisation. Using the address date in your financial system will allow you to see which of your suppliers, staff and members/shareholders live in your designated locality. Round 3 is likely to be the most resource intensive and the paper suggests that if it is not possible to do the work, that reporting on round 2 only will still be worthwhile. It basically requires the organisation to survey some of the locals identified at round 2 to ask what percentage of their income they spend in the local area.
Lincolnshire Co-op describes in the paper how it went about this. Once you have the information you can calculate the ratio. For Lincolnshire Co-op, it generated, for every £1 spent with it, an additional 40p for its local economy.
You can read the paper in full here
Anne Casey is a regular contributor to the3rdimagazine.