Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
What is a social enterprise?
Reading Time: 5 minutesIf you’ve ever considered setting up your own ‘social enterprise’, you will be pleased to know that there is more help on offer than ever before.
Social enterprises contribute at least £60 billion each year to the economy and can be a great way to start operating your own business.
But what is a social enterprise?
Social enterprises are basically businesses that are changing the world for the better. Not only can you make money from this type of business, but you can also help society and the planet. The Big Issue, Eden Project, Age UK Enterprises, Plymouth University and the Co-op. These are all social enterprises that you might recognise.
Take a look at our guide to find more:
- What is a social enterprise?
- Characteristics of a social enterprise
- How do you make money from a social enterprise?
- Can anyone set up a social enterprise?
- Examples
- Pros and cons
What is a social enterprise?
A social enterprise is a business that trades for commercial purposes, but also offers benefits to society. Many even go beyond this: their social and ethical responsibilities are just as important as the pursuit of profit. With each being intrinsically linked to the other.
Social enterprises have a clear ‘social mission’. This is what makes them different from other companies.
They have a firm emphasis on tackling social problems. Knowing what type of difference they want to make, who they aim to help, and how they plan to do it.
The profits a social enterprise makes are reinvested further into the company’s social mission. This way the positive social impact is as important to its business objective as any financial gain.
Also check out – Top 20 tips for running your own business
Typical Characteristics
Any business can call themselves a social enterprise. However, to be recognised as one officially, then the Social Enterprise Mark of certification is needed. This is the only guaranteed way that a business truly operates and advertise as one. According to www.socialenterprise.org.uk all social enterprises should do the following:
- 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
- Aim to be majority controlled in the interests of the social mission
- Always be accountable and transparent
How do you make money from a social enterprise?
Social enterprises specifically address social or environmental needs in society which makes it a positive business model.
Of course, like other businesses they have to compete in the market to make money. But instead of creating value for shareholders or owners, profit goes towards benefiting the worthy causes that they serve.
Social enterprises make their money from selling goods and services. When they profit, society profits too. This is because they reinvest their profits back into the business in a meaningful and tangible way.
Any business can become a social enterprise, from shops, cinemas, leisure centres, colleges to banks and more. You’ll be likely to find social enterprises in almost every industry because they can encompass a whole range of ideas. The social enterprise sector is huge and it’s growing all the time.
Can anyone set up a social enterprise?
Although social enterprises aim to help good causes, like any business, a social enterprise has to create a regular income in order to survive. Unlike a charity, which relies on donations and is tax exempt, a social enterprise has no such luxury.
If you’re starting the project from scratch you’ll need to think hard about whether there’s a genuine market for the goods or services that you offer. It’s essential that there’s a public demand for your services as well as a social need. The company needs to be profitable in order to survive, like any company.
Transforming an existing business into a social enterprise
If you’re an existing company looking to transition into a social enterprise, we advise you to get in touch with an existing enterprise. You can then talk to them about what they do. Then see if this could be applied to your business strategy. Naturally, you’ll want to make sure your mentor isn’t going to be a competitor. Making a social enterprise work takes a lot of time, dedication, passion and commitment. Having an entrepreneurial team behind you will benefit you a great deal.
Thankfully the recent Government budgets make social enterprises a more attractive prospect for potential investors. Previously, investors would have gained more by investing in small private companies thanks to the tax incentives offered by the Enterprise Investment Scheme (EIS).
However, the Government is encouraging investment in social enterprises by providing the social investment tax relief scheme. This gives individuals a tax reduction of at least 30% of their investment, the same as it is for the EIS. This should help level out the playing field and make investing in social enterprises more appealing.
As social enterprises are community based there is also a lot more potential for grants, although it is by no means easy to get one. To begin looking for grants try grantfinder.co.uk and biglotteryfund.co.uk.
The Big Issue Invest, who have invested £20m in more than 160 social enterprises, also offer loans from £50,000 – £1m for social enterprises.
Examples of social enterprise
- Buster’s Coffee – Buster’s Coffee in Sheffield is a coffee shop that employs adults with learning disabilities
- Mybnk – Mybnk delivers financial and enterprise education for 11-25 year olds in schools and youth organisation
- 31 Bits – A social business based in California and Uganda. It gives internally displaced women from Northern Uganda the opportunity to earn an income. They do it through selling jewellery to an international market
The pros and cons
Running one can be a real challenge, especially when your work takes time to have an immediate impact on the community. As with all business models there are ups and downs to social enterprises.
Take a look at some pros and cons below.
Pros
- Social enterprises are businesses that trade to tackle social problems, improve communities, people’s lives, or the environment. So of course this is a pro. It is highly satisfying to take part in a project that genuinely makes a difference to society.
- A social enterprise does not depend on funding and is more flexible than charities.
- A social enterprise can be an inspiring place to work or volunteer. They usually attract people who are genuinely passionate about the cause they stand for.
- There is a possibility of getting a grant to help cover some of your costs.
Cons
- Since social enterprises are businesses, they can fail if the market changes or an idea doesn’t work out.
- It can be difficult to set up a social enterprise that both makes money and impacts the community equally. Despite your hard work the social benefits of a social enterprise may take years to appear.
- As your enterprise grows, influence from new people can sometimes get lost or forgotten.
Find out how to get funding for starting a business here.
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