Thinking about starting a social enterprise?
Social enterprises are businesses with a social purpose. They have social aims, trade in competitive markets and use their profits for community benefits.
Social enterprises work across a wide range of industrial sectors, including growth sectors such as recycling, renewable energy and social care. The sector is diverse and includes some co-operatives, credit unions, housing associations, community development trusts, social firms and community businesses.
This guide will help you decide whether to start up a social enterprise and what the benefits will be for you.
What is a social enterprise?
Social enterprises are businesses driven by social or environmental purposes. As with all businesses they compete to deliver goods and services, but the difference is that their social purpose is at the heart of everything that they do and all profits that they make are reinvested towards achieving that social purpose.
They are run under a range of legal forms. Some will be incorporated as companies and they may or may not also take charitable status. Other social enterprises will form as Industrial and Provident Societies. The Community Interest Company — a relatively new legal form — is a bespoke company form designed for social enterprises with a built-in asset lock.
Social enterprises work across a wide range of industrial sectors, including growth sectors such as recycling, renewable energy and health and social care. The sector is diverse and can include:
- co-operatives — (not all co-operatives are social enterprises)
- credit unions
- housing associations
- community development trusts — their aim is to use ownership of buildings and land, trading for social purpose and self-help to bring about long-term economic, social and environmental benefits to their local areas
- social firms — their specific purpose is to create jobs for people who typically struggle to find employment
- community businesses
Well-known social enterprises include the Big Issue, Jamie Oliver’s restaurant, Fifteen and Divine chocolate.
Why set up a social enterprise?
If you are thinking about setting up a business but you want to achieve more than just financial returns, then the social enterprise model may be the most appropriate available.
Social enterprises have led the way in using commercial business principles to promote the ethical trading of goods and services and achieve social and/or environmental aims. Although such organisations have traditionally been associated with the delivery of public services, many operate very successfully across a wide variety of commercial sectors.
The commercial sectors in which social enterprises operate include furniture restoration, the supply of bottled water, chocolate and coffee production, the hospitality industry, graphic design, call centres and consultancy firms and many more.
Examples of social enterprises
Social enterprises are often formed to address a particular social or environmental need, such as in the provision of community transport for schoolchildren, the elderly and the disabled or in recycling services. For example, ‘Women Like Us’ is a social enterprise that supports women to get into part-time, flexible employment.
Many social enterprises address a variety of needs at once, such as the Eden Project in Cornwall which educates visitors on global environmental issues while also regenerating and bringing tourism to the area.
You may have identified a gap in local service provision or a failure of the commercial market to address a more widespread community problem.
Consumers are increasingly demanding ethically-sourced and produced goods, whilst the reform of public services has led to a growing desire for greater choice, eg in the provision of health and social care. Central Surrey Health (CSH) is a social enterprise providing community nursing and therapy services in Surrey. CSH began life within the local primary care trust but is now an independent organisation that is co-owned by its employees. It exists to serve the local community which started life within a primary care trust and now operates as a separate nursing and therapy body operating alongside the NHS.
Social enterprises are well-placed to address these demands, using commercially viable business models to innovate and effect long-term social and environmental change. See the page in this guide on social enterprises and the public sector.
Benefits of a social enterprise
Social enterprises need to generate revenue for sustainability but they also have equally important social and/or environmental aims. The requirement to manage this ‘multiple bottom line’ — financial, social and environmental — can result in unique challenges. However, the ability to bring about positive change to people and communities can be enormously satisfying and provide a means of making a living.
One of the benefits of running a social enterprise can be in providing employment for local people. This may include people who have traditionally found it hard to enter the labour market. A social enterprise can be the ideal environment for such people to develop their potential — either as an employee or heading up their own operation. The types of individual who can benefit from running or working in a social enterprise include:
- the long-term unemployed
- people looking for a career change
- people with learning disabilities
- disabled people
- people with mental health issues
- ex-offenders
- minority ethnic groups
- women
- young people — many schools now have pupil-run social enterprises
Some groups of people may find it difficult to work within the limitations of a traditional working environment. Social firms are an example of social enterprise businesses that have been set up to remove these barriers to employment and offer a more flexible approach to work. Find information on employing disadvantaged people in social enterprises on the Social Firms UK website.
If you set up a social enterprise in your local community, you are likely to witness the social benefits first hand. For example, you could run a social enterprise that matches up people in need of flexible employment, such as parents of young children, with elderly or vulnerable people in need of care in the same neighbourhood.
Marketing social enterprises
Social enterprises need to be competitive in any environment in which they operate. Attracting customers is vital to success. Highlighting the social and/or environmental credentials of your service/product could give you the edge over your competitors.
Social enterprise skills
As with any business, to run a successful social enterprise you need a wide variety of skills, so employing staff with business, financial, promotional and communication skills will give your company a strong, broad-ranging skills base.
Typical skills needed to run a social enterprise include:
- Leadership — showing confidence while being energetic and likeable can motivate and inspire.
- Teamwork — all members of the team should be able to work together to achieve shared aims.
- Finances and administration — keeping good financial records, sticking to a budget and monitoring your cash flow to keep the business running.
- Communication — the ability to create new business opportunities can depend on effective communication skills. A social enterprise has to communicate clearly and effectively to people both in and outside of their team.
- Problem solving — finding flexible and innovative solutions to problems while making sure you stick to your social goals.
- Understanding — being aware of the social and/or environmental problems you are trying to solve through your social enterprise.
- Business skills — these can be gained by taking up short courses, attending workshops and seminars.
Challenges facing social enterprises
Starting a social enterprise can be both exciting and rewarding, but it is also full of challenges. Social enterprises have to compete in the commercial market and face the same challenges and risks as all businesses.
For your social enterprise to be successful, you need to work to a ‘double or triple bottom line’ — social and/or environmental and financial — and in competitive markets. This can be a challenge when competing against traditional businesses working to a purely financial bottom line.
You will need to use your entrepreneurial drive to achieve social and/or environmental and financial aims without relying on grants to succeed. However, your independence will help to avoid excessive bureaucracy and allow you to change and innovate more quickly.
If you are successful, you could do well financially and have an interesting and fulfilling business career.
Business and marketing plans
Your social enterprise will need to be competitive wherever it operates. It is essential that you have a realistic, working business plan when you’re starting up a social enterprise.
A business plan is a written document that will help you describe your social enterprise and its objectives, its strategies, the market it is in and its financial forecasts. It has many functions, from securing external funding to measuring success within your social enterprise. See our guide on how to prepare a business plan.
Attracting customers is vital to success. Highlighting the social and/or environmental credentials of your service/product could give you the edge over your competitors.
Financing your social enterprise
As with any business, one of the main issues you are likely to face will be finding sources of finance to help convert your idea into a viable business operation, in order to meet your social and environmental objectives.
When you start to look for sources of investment finance, it is advisable to write a business plan so that you can formally present your case to potential investors or loan providers.
The number of investors seeking both social and financial returns on their money is growing. Charitable trusts and foundations are among the financial institutions that lend to or invest in social enterprises.
Sources of finance for social enterprises
It is worth investigating traditional finance providers, including banks and building societies, some of which are social enterprises themselves. You could also seek donations from family and friends or the local community.
Another option is to approach a Community Development Finance Institution (CDFI). CDFIs have been created specifically to provide investment in businesses that operate in disadvantaged communities. Find information on CDFIs and sources of finance on the Community Development Finance Association (CDFA) website.
Government-backed funding includes the Adventure Capital Fund (ACF), which helps ambitious social enterprises to become financially sustainable through a mixture of loans and grants and the provision of expert mentoring and support services. Find out if you are eligible to apply for funding on the ACF website.
Futurebuilders England may offer support if you are looking to set up your social enterprise to provide public services. Check to see if you are eligible to apply for support on the Futurebuilders England website.
You can also approach the Bridges Community Development Venture Fund (BCDVF), which has attracted matched funding from the Department for Business, Innovation & Skills. Read about the social criteria for investment for the BCDVF on the Bridges Ventures website.
In addition, third sector organisations can search for grants and loan financing on the Funding Central website
Social enterprises and the public sector
As well as opportunities in the commercial world, social enterprises are increasingly seeking to diversify income streams, with some deciding to operate solely or partly within the public sector. Working with the government to deliver public services can provide a consistency of demand for your services and be extremely rewarding. However, it is sensible to ensure that your entire income stream is not reliant on a single source.
Many social enterprises are attracted into public service delivery because they see a need to inject innovative approaches and fresh thinking into traditional ways of conducting business in this area.
There are a wide variety of opportunities in the delivery of public services, where social enterprises work in partnership with government, including:
- the health and social care sector
- fostering and adoption
- transport services
- refuse collection/recycling
- sports and leisure services
Barriers facing social enterprises competing for public service contracts
There are certain issues you may face when trying to compete with commercial operators for public service contracts. These can include financial and structural barriers and a general lack of understanding of the social enterprise business model among financiers and commissioners.
Public sector opportunities for social enterprises
A good example of how social enterprises are successfully contributing to the delivery of public services is in health and social care. Read a resource pack for social enterprise providers on the Department of Health (DoH) website.
Local authorities may also offer opportunities, for example, in the provision of domestic help for elderly and disabled people.
The provision of immigration advice or services may constitute additional opportunities for social enterprises and other business entities. However, this area is regulated and prospective advisers need to demonstrate that they are fit and competent to take on such roles. You can find out more about the regulatory scheme and how to become an immigration adviser on the Office of the Immigration Services Commissioner website.
Checklist: starting up a social enterprise
Before setting up a social enterprise, you might want to ask yourself the following questions to see if you are ready and whether a social enterprise is right for you:
- Have you considered what legal form your social enterprise is going to take? Options include unincorporated associations, trusts, limited companies, industrial and provident societies, Community Interest Companies and charitable incorporated organisations.
- Are you innovative, flexible and independent enough to cope with competing against other businesses with fewer social and/or environmental considerations?
- Are you completely committed to the social and/or environmental aims of the company?
- Have you considered other key regulations that might affect your business — eg if working with vulnerable people, children and the elderly?
- Have you thought about how you will finance the social enterprise, both at start-up and during periods of expansion? If using your own money, will you be able to survive while the business finds its feet?
- Do you have a viable business idea — ie is there a market for your service or product?
Thank you for reading.
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