Entrepreneurship · 14 September 2021

Setting up a social enterprise

Setting Up A Social Enterprise

Social Enterprise has been a growing buzzword phrase that is linked to the circular economy – another buzzword phrase. But what is social enterprise?

In short, social enterprise is a business with a social conscience – it is the use of business and enterprise to do good and make positive changes. UK citizens have set up hundreds of thousands of social enterprises, from start-ups to millionaire organisations with thousands of headcounts.

To be involved in social enterprise is exciting, diverse and deeply rewarding as you change people’s lives in different ways. It can create jobs, help the environment, invest in community activity, and help the most vulnerable. If you want to set up a social enterprise, read through this helpful guide.

What is a social enterprise?

The more commonly known social enterprise brands are the Big Issue, Belu Water, and Divine Chocolate. Social enterprises are not traditional charities because they make most of their money via commerce. They are different from traditional businesses because they are primarily driven by a social mission. They don’t aim to maximise profit for shareholders nor make owners wealthy, and their KPIs involve social impact.

Social enterprises come in all shapes and sizes, but their common characteristics are:

  • Their company has written a social mission.
  • Trading accounts for more than fifty per cent of their income.
  • They reinvest or donate over fifty per cent of their profits to achieve their social mission.
  • They are independent.
  • Their social impact and operations are reported transparently.

Why do people start social enterprises?

Business with a purpose is society’s reaction to the economic and environmental turmoil it has been through over the past two decades. People are identifying problems and are refusing to accept the ‘it’s impossible to fix’ attitude of the masses. A social entrepreneur believes all businesses should operate this way and puts people, the planet and profit on an equal footing.

A charity is a more complex mechanism to use for change as they are donation and volunteer dependent. Social enterprises are more attractive to organisations that want to offer support as they respect the self-sustainability of a social enterprise.

Find your mission

Your social mission is the central purpose of the social enterprise. It helps a social enterprise plan, stay on course and measure what they are doing. This mission will differentiate a social enterprise from a mainstream, 100% profit-focussed business.

An example could be a furniture recycling company whose mission could be: “To reduce the volume of waste going into landfill and create work for local people.” This mission lists the problems to be tackled: local jobs and environmental waste.

You might have been prompted by an opportunity or a gap that needs to be filled. Ascribing a mission to this idea will help you in the future. Future clients, employees or patrons will want to know the mission of your enterprise. You will need to balance the social aspect with the business aspect to make the enterprise tangible. For example, you might keep your focus on a specific geographical area.

Know the market

To set up a social enterprise, there are some key questions to ask:

  1. What is the problem you are trying to solve? What is your purpose?
  2. Is anyone else tackling this problem?
  3. Who are your customers?
Points 1-3 need market research, but it doesn’t have to be a long and costly exercise.

The second question helps you identify competitors, collaborators or people you can learn from. The third question is important because social enterprises are businesses and need income. Before you resolve company structure or other admin, you need to know who will want to buy your product or service. Your enterprise might have several different customers, but unless you can clearly answer this question, you will find it difficult to drive income.

Income growth

A top priority for your enterprise will be finding and growing your customer base to ensure your social enterprise is sustainable in the long term. A social enterprise makes a profit but what it does with the profit is what differentiates it from mainstream businesses. Profit is important and, therefore, finance management is essential.

Budget wisely

Learn how to do a budget, how to track cash flow and always have your finger on the pulse of the current financial situation. Before starting, establish all your costs, prices and margins.

Get help from financial professionals

As the income grows, you will probably need to get support from a bookkeeper, specialist accountant and financial advisor.

Funding for social enterprises

In addition, be aware that there is money available that is specifically allocated for the support of social enterprises, such as:

As your organisation grows and proves itself, social investment may become an option with anything from peer-to-peer lending to repayable finance. GoodFinance.org.uk offers social investment.

Headcount

From starting as a one-person band, you might need to add to your team as you grow. Before pressing that button, address these issues:

  • Get your administration ready, such as payroll, contracts, tax and national insurance.
  • How are you going to recruit? Tips:
  • As a startup, it helps to recruit people who bring varied skills and experience to the table.
  • Recruit through your networks, social media, local news websites.
  • Members of Social Enterprise UK, www.socialenterprise.org.uk, can place job postings on that platform’s jobs board.
  • Use the hashtag #socent on Twitter for social enterprise-related posts.
  • Map out the skills in your organisation and note the gaps. For example, if you have a commercial background, perhaps you need to hire in social sector skills. You might also need a board of directors or trustees (subject to your business structure) for strategic direction and governance. A board usually brings a mix of skills, experience and networks. Note: Good governance is vital long-term.

Marketing (and sales)

Now you have a mission, a service or a product, market knowledge and pricing and strategic direction. How are you going to communicate to others about this amazing product or service? You might need to reach a variety of markets and people.

  • Before you start, identify your unique selling proposition (USP), i.e. what do you do or have that is different to anyone else?
  • Different audiences – You may want to reach out to users and brand supporters. A branch champion is not necessarily a user, but they will spread the word.
  • Channels of communication – Where is your market at? Where will they be when your product or service is at the forefront of their minds?
  • You also need to develop a ‘brand’ or ‘identity’ for your enterprise. What would your enterprise look like if it were a person? How would it behave? Let those answers influence your brand language, visual language and behaviour. Remember, a brand is not just a logo. It is also about the mission and values of the enterprise. Check your choices against these factors:
  • Is it professional,
  • Understandable,
  • Clear,
  • Different?
You might be relevant to your enterprise to execute your marketing via A5 flyers handed out to local residents or at local job centres. You can try to land an editorial article in the local paper and set up a basic website with linked social media accounts. Use the website to clearly state the enterprise’s plans, services and, of course, your mission.

Find complementary sites or platforms and piggyback onto their foot traffic, e.g. SEUK’s Buy Social or Social Saturday campaigns, and watch the marketing moves of your competitors.

What legal structure will your enterprise be?

You can start off simply as a sole trader or unincorporated business. However, if your aim, or your business plan’s aim, is to win contracts, qualify for funding, attract investment, and recruit people, then you are going to have to go for a more formalised business structure.

This structure decision will be influenced by the following factors:

  • What type of activities are you going to do?
  • Where do you think your money will come from (short and long term)?
  • What sort of governance will suit your enterprise, and how much control do you want?
  • Who else are you inviting to participate?
  • Who are your potential customers?
  • Who are your potential partners?
The legal entity structures are as follows:

  • A company can either be a company limited by guarantee (CLG) or a company limited by shares (CLS);
  • CLGs have no shareholders, they have ‘members’. The members may not profit personally from the enterprise.
  • A CLS can be a social enterprise but often requires an adaptation.
  • The Community interest company (CIC) structure was specifically created for social enterprises. A CIC can either be a CLG or CLS with additional protections such as:
  • Every CIC has to report on its social mission annually,
  • A CLS has limitations on its profit distribution,
  • All assets of all CICs are retained for community benefit. These additional protections are the reason CICs can get access to some grants.
  • Registered charities can be social enterprises as long as trading constitutes more than fifty per cent of their total income. They are heavily regulated by the Charity Commission and have a board of trustees (volunteers). There are trade limitations, and the registration is more complex. Charities have more tax relief avenues and more grants. The platform charity-commission.gov.uk has more information.
  • Cooperatives are a common structure for social enterprises as they are more participative and democratic. The two main types of co-operative are:
  • The community benefit society (CBS or ‘BenCom’) – it has social objectives built into its governing documents.
  • The more standard industrial provident co-operative society (IPS).
  • The Financial Conduct Authority (FCA) regulates co-operatives.
The Get Legal website is a good source of social enterprise information and simple legal documents and templates. Organisations like Social Enterprise UK are also a good source of information and support.

The business plan

A business plan is useful for any business, big or small. It collates all the vital business information in one core document. It doesn’t have to be tome-like, and it is beneficial for clarifying your thoughts. It will also help you address all the key areas outlined above.

Don’t get analysis-paralysis with the business plan. Instead, test out your ideas and plans with peers, potential clients and collaborators. Your business plan will change as your enterprise grows, so get it done and start.


 
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