SOME FREQUENTLY ASKED QUESTIONS ABOUT SOCIAL ENTERPRISE
A social enterprise is a business that trades for a social and/or environmental purpose. It will have a clear sense of its ‘social mission’: which means it will know what difference it is trying to make, who it aims to help, and how it plans to do it. It will bring in most or all of its income through selling goods or services. And it will also have clear rules about what it does with its profits, reinvesting these to further the ‘social mission’
Social enterprises come in many shapes and sizes from large national and international businesses to small community based enterprises (see question 2). But they all:
Are businesses that aim to generate their income by selling goods and services, rather than through grants and donations
Are set up to specifically make a difference
Reinvest the profits they make in their social mission
If you meet or aim to meet these criteria and you have these commitments expressed clearly in your governing documents then you are very probably a social enterprise.
Read Social Enterprise Explained to find out more.
According to Social Enterprise UK, social enterprises should:
Have a clear social and/or environmental mission set out in their governing documents
Generate the majority of their income through trade
Reinvest the majority of their profits
Be autonomous of state
Be majority controlled in the interests of the social mission
Be accountable and transparent
More detail about these points can be found in the short paper: What makes a social enterprise a social enterprise?
Social enterprises cover a huge range of industries - Cafedirect is the UK's largest Fairtrade hot drinks company; The Elvis & Kresse Organisation (EaKo) takes industrial waste materials, turns them into stylish luggage and hand bags and donates 50% of the profits to the Fire Fighters Charity; Hill Holt Wood educates at-risk youth in an ancient woodland; Central Surrey Health is a pioneering social enterprise in the healthcare world that is run by the nursing and therapy teams it employs; Green-works takes office furniture that would have been sent to the landfill and offers it at a large discount to charities and other organisations.
We are the national body for social enterprise. Social enterprises are businesses that are changing the world. When they profit, society profits.
Together with our members we are the voice for social enterprise. We do research, provide information and tools, share knowledge, build networks, raise awareness and campaign to create a business environment where social enterprises can thrive. We also support social enterprises at all stages of their development through information, advice, tools, events and networks.
Working with our members, we:
Raise awareness of social enterprise and what it can achieve through the media and campaigning.
Influence politicians across the spectrum, generating support for social enterprise. Political engagement has been the bedrock of our work and we continue to have great success pushing social enterprise up the policy agenda.
Work with private sector organisations who want to explore or consolidate their position in the rapidly-growing social enterprise market. We provide a range of opportunities for them to engage with social enterprises and get involved in the social enterprise ‘space’.
Share knowledge and information - we publish a range of case studies, how to guides and training materials.
Build networks and encourage shared-learning through events and training.
Do research to expand the social enterprise evidence-base.
Read our latest Annual Review to find out more about what we do.
The pioneers of social enterprise can be traced at least as far back as the 1840s, in Rochdale, where a workers' co-operative was set up to provide high-quality affordable food in response to factory conditions that were considered to be exploitative.
In the UK, a resurgence of social enterprise started in the mid 1990s with the coming together of different organisations, including co-operatives, community enterprises, enterprising charities and other forms of social business, all united by the prospect of using business to create social change.
The best government data estimates that there are approximately 70,000 social enterprises in the UK contributing £18.5 billion to the UK economy (based upon 2012 Small Business Survey, 2013) and employing almost a million people.
While it is difficult to agree data on the absolute size of the social enterprise sector, Social Enterprise UK’s report The People's Business provides up-to-date information and insight into the characteristics and strength of the sector.
The two are distinct ways of doing business. A social enterprise's primary purpose is its social and/or environmental mission – it tries to maximise the amount of social good it creates balanced against its financial goals.
An ethical business however, attempts tominimiseits negative impact on society or the environment.
Social enterprises use a wide variety of legal forms, the most common forms are listed below. To see a full list and their pros and cons, as well as more information about the things you need to consider when starting a social enterprise, read the guide: Start your social enterprise.
Community interest company (CIC)
A CIC is a legal form created specifically for social enterprises. It has a social objective that is "regulated", ensuring that the organisation cannot deviate from its social mission and that its assets are protected from being sold privately. For more information on CICs, contact the CIC regulator - www.cicregulator.gov.uk
Industrial and provident society (IPS)
This is the usual form for co-operatives and community benefit societies, and is democratically controlled by its members in order to ensure their involvement in the decisions of the business.
Companies limited by guarantee or shares
The most common legal structure for standard businesses. Many social enterprises also choose these legal forms because they are very flexible when it comes to governance, and when it comes to getting investment. To ensure a standard company is a true social enterprise it will need to ensure it has a social mission written into its Memorandum and Articles of Association and is clear about reinvesting its profits.
Group structures with charitable status
This is a very common legal form for social enterprises. In part it is common as increasing numbers of charities are moving away from traditional models of fundraising and becoming more businesslike in order to ensure their sustainability. Partly it is a result of the fact that tax is an important consideration for some organisations where the retention of surpluses is essential. In these cases the tax breaks associated with charitable status can be an important factor and mean that having a charitable structure as part of the group is worthwhile.
As with any other business, setting up a social enterprise will often require substantial advice and support. Social Enterprise UK has developed a range of publications including Start your social enterprise which will provide you with some information on the legal structure and streams of finance you may want to consider. Other guides are available to download from our online resources library.
Much of the support available to mainstream business may be relevant to social enterprises starting up, as they often face many of the same barriers. You may want to contact one of the regional social enterprise networks, who have an intimate knowledge of local conditions, and can put you in touch with other local organisations.
If you are starting up any enterprise it is always good to learn from what other people have achieved. You may want to read some of the case studies on businesses and profiles of social enterprise leaders.
Whether you’re looking for finance to start, grow or move into social enterprise, there are a number of different types of finance available, each with their own advantages and disadvantages. Finance for social enterprises range from grants to social investment, with many different options in between.
The most common finance options include:
Grants - Do not need to be repaid, but there are also a number of drawbacks that must be considered, such as flexibility and sustainability issues.
Debt finance - Usually available as a basic loan which will need to be paid back with interest, and these can usually be put to more flexible use than grants.
Equity finance - Involves the exchange of capital for part-ownership of the business (think Dragon’s Den). Two main providers for this are venture capitalists and business angels.
Community Finance - Often provided by Community Development Finance Institutions (CDFIs) and Credit Unions who work to address financial exclusion.
In our advice and support section you can find a comprehensive list of organisations that provide finance and funding.
Accessing affordable finance and investment is an important issue for social enterprises and Social Enterprise UK is responding to this need through its Social Investment and Finance Programme.
We also run the Social Investment Forum, a network of Social Investment Finance Intermediaries (SIFIs) - these organisations working in the space to provide social investment (the provision and use of finance to generate social and financial returns) for social enterprises, from those set up to address financial exclusion in communities such as CDFIs; specialist venture capital providers such as Big Issue Invest, Bridges Ventures, CAF Venturesome; trusts and foundations such as Esmée Fairbairn; support organisations offering venture philanthropy such as CAN and UnLtd, and social banks such as Triodos Bank, Charity Bank, and Unity Trust Bank.
Big Society Capital - the world's first social investment back was launched in April 2012 and will be an important anchor within the UK’s growing social investment market. With £600million it has the potential to direct capital to social enterprises looking to start up or expand. Please note that Big Society Capital does not finance social enterprises or charities directly - funds are given to SIFIs, which act as intermediaries. It is these organisations you should contact if you're an organisation seeking finance.
Grants are also available from various initiatives including the Big Lottery Fund, various trust and foundations, and from local authorities and government departments. As social enterprises operate as businesses they should also be able to access finance from more traditional avenues such as high street banks including The Co-operative Bank.
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Firstly, we need to bust a few myths. A registered charity can still be a business. Many charities are social enterprises through and through: they don’t rely on grants and donations, but instead earn their income through selling goods and services. HCT,London Early Years Foundation, Turning Point, Sandwell Community Caring Trust – are all social enterprises with charitable status. If your charity raises most of its income by trading – it is probably already is a social enterprise. In which case, welcome to the social enterprise world! Do join us, or sign up for more information about social enterprise using the links above.
If this is not the case then turning a charity into a social enterprise is principally about changing the funding/business model of the organisation. This means moving away from being dependent on grants and donations to generating more of your income through trading – selling goods and services.
There are some legal changes you may have to make. Charities, for example, can only trade in pursuance of their charitable object (termed ‘primary purpose trading’); so if your business is set up to advance education you can only sell services connected to education. You couldn’t sell chocolate or IT support for example, because that wouldn’t forward the cause of education.
To overcome this some charities set up a separate ‘trading arm’ - a company of some kind that sits underneath the charity to carry out the trading and donate any surplus income to the charity. If this is a new development for your group, you may need to seek some expert advice about the implications for your organisation.
You may also need to seek legal advice. It is always a good idea to speak to someone in another charity who has been there before you, so do use your personal and professional networks to find out about someone’s real-life experience of setting up a trading arm.
There is no single regulator for social enterprises. Unlike charities, social enterprises take a range of legal forms so they are regulated by a range of different bodies:
Community Interest Companies are regulated by Companies house and the Community Interest Company Regulator
Standard companies limited by share and guarantee are regulated by Companies House
Industrial and Provident Societies are currently regulated by the FSA – though this is likely to change shortly
Social enterprises with charitable status are regulated by the Charity Commission
In the end, being a social enterprise is about adopting a set of operational principles. These include:
Having a clear social and/or environmental mission (set out in your governing documents)
Generating the majority of your income through trade
Reinvesting the majority of your profits to further the social mission
This is regardless of what form the organisation takes. So if you have these in place – you are acting as a social enterprise. There is no social enterprise regulator, but if you do want to identify as a social enterprise, join Social Enterprise UK and you will receive a "We're a social enterprise" badge to use in your electronic and printed materials.
SOCIAL ENTERPRISE PLACES
In June 2013 SEUK launched the Social Enterprise Places project, which recognised Alston Moor in Cumbria as the UK's first Social Enterprise Town. If you are interested in nominating your town, city or region as a social enterprise place, click here.
Enabling groups to ‘spin out’ of the public sector into social enterprise models is a big part of the government’s mutualisation agenda.
There are a number of guides and resources designed to support people and groups on this journey.
The Right to Run guide produced by Social Enterprise UK on the subject has an excellent resource section with support bodies who specialise in this area listed.
The government has also launched a Mutual Information System and Support Programme to support people through the journey to becoming a mutual.
In our membership we also have a number of organisations that specifically support groups on this journey. Should you wish to receive a copy of the list of support providers please email “spin-out support” to email@example.com
The government is committed to getting more small businesses, social enterprises and other civil society organisations into the public sector’s supply chain. One way the government aims to do this is by ensuring that all opportunities are advertised in a central portal. While this does not yet have all contracts on it, it’s a good place to start.
The Cabinet Office has also committed to finding routes through the barriers that social enterprises come up against when bidding for contracts. They have set up the supplier feedback service to capture information on barriers and intervene where possible.
If you are a smaller organisation it may also be worth looking at 3SC. 3SC bids for large public sector contracts on behalf of social enterprises and builds consortia for delivery. Further details can be found here - https://3sc.org
If you want to convert your private business into a social enterprise there are a number of things to consider.
Firstly you need to be clear about why you are doing it. Most importantly you need to be clear about the difference you want to make – your social mission. If know what this is, and it is central to your business – then social enterprise is probably the right choice for you.
The next thing to think about is your business plan. You need to make sure that your business will work as a social enterprise – take into consideration how you generate your income and how being a social enterprise will influence this.
Social enterprises re-invest their profits and can’t be sold in the same way as standard businesses as they are set up for a social mission. Because of this you will need to think carefully about any existing and future investment before converting to a social enterprise.
When it comes to future investment needs, social enterprises can sometimes struggle to get investment through the same channels as private businesses, so you need to bear this in mind and look at the social investment options out there.
You will also need to think about how you recover any personal investment you may have put into the business yourself. It is fine for you to do this and make a reasonable return, you will just need to be clear and transparent about it, and seek advice.
Once you have thought these things through – if you decide social enterprise is right for you, there are few steps to follow.
Social enterprises don’t have a single regulator so most of the changes you will need to make will be to your governance. It could be that you are already operating as a social enterprise – your business has a clear social mission and you reinvest your profits, but you have not made this a formal arrangement. In which case you will need legal advice to ensure these are written it into your governing documents. Many solicitors specialise in this sort of thing – including the ones in our membership directory.
You will also need to think about accountability and how you are held to account on your social mission. This could be through appointing an independent board or adopting a membership structure of some form. Alternatively you could investigate converting your existing company into a community interest company (a legal form set up specifically for social enterprises).
There is helpful guidance available from BIS on creating a CIC.
16. What is social impact and how do I measure / assess it?
Social Impact can be difficult to get your head around. Here are a few pointers to help you on your way to understanding, and measuring, your social impact:
What is social impact?
Social Impact is the effect of an activity on the social fabric of the community and well-being of individuals and families.
Why measure it?
Measuring your social impact will help you understand, manage and communicate the social value that your work creates in a clear and consistent way. This information can be used for a number of very beneficial purposes, the principle of which are:
1. Helping you better understand, and target, your social work: Detailed information about the impact your time and investment is having upon your social goals will greatly improve your ability to put your precious resources to best use. Social impact assessment helps organisations to plan better, implement more effectively, and successfully bring initiatives to scale. For instance, you can target activities that prove to be particularly beneficial, or identify and evaluate areas where your investment is not showing the return you expected.
2. Attracting investors and retaining investor confidence: Social investment has generated great hopes among many investors, but it is going to have to demonstrate measurable returns, comparable to financial yardsticks, if it is to retain investor confidence. If social investment is to become as important as financial return, the measurement of social impact must be comparably easy to understand and communicate.
3. Tendering for public sector contracts or selling goods and services: Social enterprises must be able to advertise their business in a way that is quickly and easily intelligible to public service commissioners and consumers alike. This is especially important following the passing of the Social Value Act, as information about social impact provides substance and strength to contract bids, informing commissioners and partners of the added or increased benefits of social enterprise.
Social Reporting Examples
To see what quality social impact measurement reporting looks like, here are some links to some examples that were recognised by the 2012 UK Social Enterprise Awards.
HCT Group - http://hctgroup.org/social_impact
Social Investment Scotland - www.socialinvestmentscotland.com/files/7213/4011/7218/SIS_Social_Impact_Report_2012.pdf
From the outside, social impact measurement, or assessment, can seem like a complicated business. However, once you have grasped the terminology and a few of the basic principles the process quickly becomes a clearer.
One of the main difficulties with assessing social impact is the variety of difference methods used to measure it.
SROI, for instance, stands for Social Return On Investment, and attempts to place a monetary value on social, environmental and economic outcomes. This enables a ratio of benefits to costs to be calculated, so a ratio of 3:1 indicates that an investment of £1 delivers £3 of social value.
Visit the SROI Network for more information: www.thesroinetwork.org
PwC has created a network of Centres for Social Impact (CSIs) where they foster social innovation and impact measurement: http://firestation.pwc.co.uk/centre-for-social-impact.html
The variety of competing methods for measuring social impact is mostly due to the diverse nature of the social enterprise sector, so some are better suited to certain organisations that other. The following companies offer more information as well as social impact measurement services: