Social enterprises are businesses with social aims. They trade in competitive markets and use their profits for community benefits.

Overview

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. Their social purpose is at the heart of everything that they do and all profits 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 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 and renewable energy. The sector is diverse and can include:

• co-operatives - (not all co-operatives are social enterprises)
• credit unions
• housing associations
• community development trusts - they use ownership of buildings and land, trading for social purpose and self-help. They aim 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 want to achieve more than just financial returns, the social enterprise model may be the most appropriate available.

Social enterprises use 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 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. For example, 'Women like Us' is a social enterprise that supports women to get into part-time, flexible employment.

You may have found a gap in local service provision or a failure of the commercial market to address a 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. For example, the provision of health and social care started life within a primary care trust, now operates as a separate nursing and therapy body operating alongside the NHS.

Social enterprises use commercially viable business models to innovate and effect long-term social and environmental change.

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. 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. They offer a more flexible approach to work.

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. The people who would benefit include parents of young children, the 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.

Challenges facing social enterprises

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.

Financing your social enterprise

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.

Government-backed funding includes Aspire to Enterprise. This organisation helps ambitious social enterprises to become financially sustainable through seminars and the provision of expert mentoring and support services.

The Social Entrepreneurs Fund may help if you are looking to set up a social enterprise.

Social enterprises and the public sector

Some social enterprises 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. 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. These include:

• 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.

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 canfind out more about the regulatory scheme and how to become an immigration adviser on the Office of the Immigration Services Commissioner website.