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.

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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.

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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.

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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- Opens in a new window.

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.

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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 cashflow 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.

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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.

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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.

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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. See our guide on how to use your business plan to get funding.

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- Opens in a new window.

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- Opens in a new window.

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- Opens in a new window.

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- Opens in a new window.

In addition, third sector organisations can search for grants and loan financing on the Funding Central website.

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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- Opens in a new window.

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.

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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?

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CASE STUDY

Here’s how being a social enterprise works for our business

Swamp Circus is the longest-running contemporary circus in the UK, promoting the art of circus performance through highly original entertainment, training, education and community regeneration projects. Founded in Sheffield in 1986, the business has always had strong charitable and environmental links. Becoming a charitable trust (Swamp Circus Trust) in 1993 helped the company to take its community work to new levels. Development Officer Tim Woolliscroft explains.

WHAT I DID

Get plenty of advice

“Swamp Circus Trust uses circus skills in a variety of projects that benefit individuals and communities in the South Yorkshire area. That could be anything from confidence-building workshops in schools, to live shows that tackle community themes. The business also has a strong commercial side, providing high quality circus-based entertainment and team-building events to the corporate market. The two sides of the business co-existed for several years when we decided we wanted to do more.

“We got advice from several sources, about how we could set up a more appropriate legal structure. The main criteria was that we wanted to be able to pursue more funding opportunities, such as grants – many of which are easier to apply for and get if you have charitable status. That, and the fact that we were already engaged in charitable work, led us to incorporate as a charitable trust, which we did with the help of legal advisers.”

Operate as a business

“While a social enterprise has built-in differences compared with a traditional company, it still needs to operate as a business. The process of becoming a charitable trust helped us to put business structures in place. For example, we had to write business plans, plus a company constitution outlining our guiding principles and goals. We also had to appoint trustees, which is a valuable exercise because it makes you think about where the skills gaps are in running your company, then gives you the opportunity to fill them.

“Preparing a business plan also made us focus on the sources of finance available. Setting up as a charitable trust can limit the options for traditional bank finance, partly because the legal structure means that trustees may be personally liable for debts, which can make them more cautious about loans. So we’ve had to be flexible and creative, exploring as many financing options as possible and adapting ourselves as we go.

We now operate using a mixture of grants plus the income we generate from our commercial clients. Both have increased over the years as a result of careful planning. We have also developed strong partnerships with a number of organisations in our area, which is invaluable for exchanging funding ideas.”

Reinvest wisely

“Swamp Circus Trust is a non-profit company, which means that once we’ve covered our core costs, any profit is reinvested straight back into the business. We’ve found from experience that being non-profit helps with funding opportunities.

“It would be tempting to pour all our profits directly into the community projects we run and into starting new ones, since we always have fresh ideas waiting in the wings! However, we are careful to invest in the business infrastructure as well, things like premises, equipment and marketing. Without covering these costs we cannot develop new projects so it’s a false economy to ignore that side of things.”

WHAT I’D DO DIFFERENTLY

Use charitable status for marketing purposes

“When we set up as a charitable trust, we didn’t make much of a fanfare about it and in retrospect we probably should have done. It’s only recently that we’ve started actively publicising our status and using it more creatively as a marketing tool. Our clients do cite our community work as an incentive to employ us, but we’re careful not to make that the only reason. We want to be judged on the quality of our service as well.”

Employ people who share the passion

“As a social enterprise grows, you sometimes need to take on people with commercial experience, but it’s ultimately frustrating if they don’t also share the original vision and sense of excitement. It takes a certain type of person to make a success of a social enterprise and after one or two early mistakes, we’re a lot more choosy these days about who we employ.”

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CASE STUDY

Here’s how I started a successful social enterprise

Psychologist Ian Glasscock set up Community Interest Company (CIC) Games for Life in 2009, after learning about new technology which allows people with attention deficit hyperactivity disorder (ADHD) to be treated using a thought-operated computer system. The Herts-based social enterprise has since successfully used the pioneering system to help children suffering from the behavioural disorder to learn to control their symptoms.

WHAT I DID

Research the idea

“I’ve had problems with attention difficulties myself which was part of my motivation to set up the business. I completed a master’s degree in the cognitive neuroscience of attention and then spent some time in the US, where I found out about NASA technology which monitors levels of concentration in the brain using sensors linked into a computer game.

“That was really when I decided that there was a business idea here – that we could retrain our brains with these mind-controlled computer games. The way the system works is that when someone is in a focused state of attention their brainwaves feedback wirelessly to interact with the computer and the games. So it teaches people to concentrate, because they have to in order to play the game. I established the business with my wife in 2009 after setting up an exclusive agreement with a US manufacturer to use the technology in the UK market.

“We approached the local university and launched a pilot study project with some Herts County Council schools. At the end of the pilot the children involved had a reduction in their core ADHD symptoms. Instead of taking medication or going through a therapy process, they teach themselves how to pay attention.”

Choose the right form of social enterprise

“Before setting up, I did some research and came across the social enterprise. There seemed to be a couple of different formats, including the CIC. I took the view that I didn’t want to just be in it for the money. But don’t get me wrong, I do need to earn enough to support my basic needs.

“Initially we set up the business with just a laptop at home, but we’ve now moved to a bigger office at the business technology centre in Stevenage. I’ve done all of this on a shoestring. We are now working with local authorities and a leading children’s charity, as well as providing systems to schools and parents for home use.”

Make the most of support

“There is support and advice available for social enterprises, so make the most of it. I received a lot of help from an expert adviser on social enterprises. He has helped us keep our head above the water in the tough economic climate.

“We’ve received two social enterprise grants, each worth £1,500. The money helped us fund our website marketing – an area we knew nothing about. We’ve also just taken on an apprentice for 18 months using funding from Herts County Council. We took her on so it would free me up to develop the business. The future is bright for us and we’re now looking at other health and education related product innovation.”

What I’d do differently

“In hindsight, I should have had more of a business focus from the start, rather than just wanting to do something meaningful. A social enterprise needs to stand on its own two feet just like any other business.

“I should also have applied for more funding from the start. Even if you don’t get it, you can get useful feedback and advice.”