Social enterprises

We have been working on setting up social enterprises since the early 1990s. We bring a unique understanding of the charity and commercial issues facing any social enterprise. We use our proven techniques developed in a unique mix of commercial, voluntary and statutory experiences to help create and support social enterprises so that they can be successful.

In our experience, the issues that are likely to undermine a social enterprise include:

  • Lack of money to fund the start-up period until the enterprise is viable
  • Too much pressure on too few individuals often volunteers.
  • Lack of sales and marketing expertise
  • Focus on social rather than income generation
  • Not building on experience and existing contacts but trying something new.
  • Lack of clarity about the social impact that is being generated

What is a Social Enterprise?

Social Enterprises are part of the growing "social economy". The social economy is a growing collection of organisations that exist between the traditional private sector on the one hand, and the public sector on the other. Sometimes referred to as the "third sector", it includes voluntary and community organisations, foundations and associations of many types.

The social enterprise sector occupies the ground between the purely charitable and purely private sectors. It is not an easy option, as you need to balance both the social mission and profitability – the double bottom line. Social Enterprises have to have some understanding of both cultures and are often not understood by either. Banks are used to working with the commercial/private sector, and they often don't understand the legal and management structures, they are just interested in the profit. Grant funders often feel that trading, profit and building reserves (i.e. operating in a more business-like manner) has less social value. Approaching advice and support agencies, which traditionally service one or other of the sectors can be very unsatisfactory.

Social Enterprises stand out from the rest of the social economy as organisations that use trading activities to achieve their goals and financial self-sufficiency. They are businesses that combine the entrepreneurial skills of the private sector with a strong social mission that is characteristic of the social economy as a whole.

The social objectives will typically be one or more of the following:

  • Offering social or environmental goods and services (e.g. recycling, childcare)
  • Trading to provide social or environmental goods and services (e.g. the trading arm of a charity)
  • Using trading processes or trading activities that have a significant social benefit (e.g. training programmes for long-term unemployed individuals, or providing work-based activities for people with disabilities)

It is useful to remember that Social Enterprise refers both to forms of organisation - and to an activity that takes place in a vast range of organisations (including many charities, voluntary and community organisations).

Social enterprise business and legal structures

You need a legal structure for your business which is a social enterprise.

If you want to set up a social enterprise business that has social, charitable or community-based objectives, you can set up as a:

Mutuals are owned and run by the members, such as a co-operative.

Community Interest Companies

  • Community interest company (CIC) – a type of limited company that exists to benefit the community rather than private shareholders. A CIC can be any type of company, even a community interest plc. It can be limited by guarantee or shares and pay dividends
  • To set up you need:
    • A 'community interest statement', explaining what your business plans to do
    • An 'asset lock'- a legal promise stating that the company's assets will only be used for its
    • Social objectives, and setting limits to the money it can pay to shareholders, and identifying where the assets would go if you closed

Social Enterprise Funding

There are some specialist funds for social enterprises, and many general funders such as the Big Lottery will also fund some social enterprise activity. To get social enterprise funding, you need to be clear about your social impact and convince the funder that you are a social enterprise, not just a business.

Funding is always changing - Funding Central is a free website that includes social enterprise funds.

Before you apply for social enterprise funding, you need to know why you want it and how it will be used. A good foundation is a business plan. Unlike business plans written purely for commercial success, the focus needs to be not only on how you can maximise your financial return but also focus on how you can maximise the impact you make as an organisation. Funders of social enterprises are looking for you being ethical, but it does not mean money does not matter.

The types of funds you need will range from:

  • Seedcorn to develop ideas and undertake feasibility studies
  • Revenue to support growth and cash flow particularly if you undertake any Payment by Results contracts
  • Capital to develop buildings or pay for equipment

As well as grants many social enterprises now look at Social Investment or traditional sources of finance to get loans. The largest social investor is the Social Investment Business.