1. What are social enterprises?
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.
2. What sorts of social enterprise already exist?
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.
3. What is Social Enterprise UK?
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.
- Provide a range of support and consultancy services to social enterprises as well as public and private sector organisations.
Read our latest Annual Review to find out more about what we do.
4. What is the history of social enterprise?
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.
5. What data is there on the size and popularity of the social enterprise movement?
The best government data (the Annual Survey of Small Businesses UK 2005-2007) estimates that there are approximately 62,000 social enterprises in the UK contributing at least £24bn to the economy. Social enterprises are estimated to employ 800,000 people. We believe the true picture is that the social enterprise sector is bigger than this data suggests.
While it is difficult to agree data on the absolute size of the social enterprise sector, Social Enterprise UK’s report Fightback Britain – the State of Social Enterprise Survey 2011 provides up-to-date information and insight into the characteristics and strength of the sector.
- 39% of social enterprises are concentrated in the most deprived communities (13% standard SMEs)
- 58% of social enterprises reported growth last year (28% SMEs)
- 57% of social enterprises predicted growth next year (41% SMEs)
6. What is the difference between a social enterprise and ethical business?
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.
7. What are the legal structures for social enterprises?
Social enterprises use a wide variety of legal forms, the most common forms are:
- 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.
8. Where can I get advice on starting up a social enterprise?
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 which will provide you with some information on the legal structure and streams of finance you may want to consider. Visit Social Enterprise UK’s 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.
9. What finance is available for social enterprises?
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.
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.
There are many 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.
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.
10. How can I learn more / get involved?
- Sign up to our fortnightly e-newsletter which rounds up the latest news, resources and events (register on the homepage of our website)
- Get in touch - we're always interested to hear your story, and find out new and interesting developments you may be undertaking. Please let us know what you are doing - email email@example.com
- Follow us on twitter - http://twitter.com/#!/SocialEnt_UK
11. My organisation is a charity, how can I turn it into a social enterprise?
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.
12. Can I register to become a social enterprise?
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. While there is no social enterprise regulator there is an accreditation mark and further details can be found here: www.socialenterprisemark.org.uk
13. Where can I found information on ‘spinning out’ from the public sector?
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 firstname.lastname@example.org.
14. Where can I get information on how to win public sector contracts?
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
15. I want to turn my private business into a social enterprise. What do I do?
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).
Helpful guidance on creating a CIC - www.bis.gov.uk/assets/bispartners/cicregulator/docs/guidance/11-953-community-interest-companies-guidance-chapter-4-creating-a-cic.pdf