Social enterprises are a growing force in the UK. There are now more than 70,000 of these companies operating in Britain, but, despite their burgeoning success, still the most common questions asked about them are: what are they, and what do they do?
Put most simply, they’re commercial entities that trade with a specifically social or environmental purpose. Examples include Rubies in the Rubble, a business that uses food waste from London’s wholesale fruit and vegetable markets to make chutneys and preserves; the Living Furniture Project, which employs and trains homeless people to upcycle unwanted furniture into usable and saleable pieces; and Gandys Flips Flops, a shoe retailer that was set up by two brothers who lost their parents in the 2004 Boxing Day tsunami and whose profits go towards founding orphanages in developing countries. And the vast majority of social enterprises are SMEs and small community-based operations, many of which will be among the businesses highlighted this week as part of Responsible Business Week, an event organised to inspire more people to run companies that can have a positive impact on their communities and society at large.
Don’t be mistaken in thinking that social enterprises are just feel-good organisations run by the well-meaning without profit in mind. They’re a serious presence in the British business community, contributing about £18.5 billion to the economy, and employing almost one million people, according to umbrella body Social Enterprise UK. And they aren’t to be confused with ethical companies or firms that prioritise sustainability. Social enterprises have an environmental or societal mission as the primary purpose of their operation, while businesses that are sustainable or ethical try to minimise their negative impact on society or the environment, as we’ve discussed before.
Social Enterprise UK defines their member businesses as follows:
- A social enterprise has a clear environmental or societal mission at its heart, set out explicitly in its governing documents.
- Most of its income is generated by trade, in other words selling goods and services, rather than relying on grants and donations.
- The majority of profits made are reinvested in the business to further its core aim, instead of going to shareholders.
- Social businesses are autonomous from the state, and are majority-controlled in the interests of the declared social mission.
- Organisations of this kind must be accountable and transparent.
For all of these firms, growing the bottom line matters as much as to any other business. More money in the bank means more investment in the stated social aim. And a strong business model and plan are essential, as is measuring the impact of the operation’s efforts. In essence, these are companies that exist to do a social good, but that still operate along commercial lines. They pay their suppliers and their staff. Those that will prove enduring and successful will have plans for growth and expansion, as well as wanting to increase their customer base. And the latter is something that should be increasingly achievable – recent research from the Social Economy Alliance suggested that consumers show a clear preference for businesses that have a social focus and that reinvest their profits.
The current Government has given its support to the social enterprise movement through the launch of Big Society Capital in 2012, the world’s first social investment bank, which has been designed to free up capital for social entrepreneurs. Chancellor George Osborne also recently announced a 30 per cent tax rate relief on investments in social enterprises in the recent Budget, a move that it is calculated could release up to half a billion pounds for such firms over the next five years.
As the social movement becomes more mainstream, more charities are morphing themselves into social enterprises or adding a social enterprise element to their operations to raise more revenues. And growing numbers of private businesses are expressing interest in taking on social enterprise status, while others are coming to realise that their operations are effectively social enterprises already and want to formalise this shift in focus. Those considering such a move should think about the following:
- What is your core social or environmental mission? Once you’ve decided this – and that you really want to convert your operation to a full-blown social enterprise – you must write this into your governing documents. Your solicitor can help with this.
- What is your business plan? In other words, how are you going to make your company work as a social entity? How will you generate income and what has that to do with your proposed social status?
- What are your personal financial plans? Social enterprises can’t usually be sold like regular companies. If you need to recover any personal investment that you’ve made in the business it could still be possible to do so, but you’ll need to get professional advice and make your longer term plans clear from the outset to avoid the social enterprise being compromised.
- How will you measure your success in terms of your social mission? It will probably be necessary to set up an independent board or adopt a membership structure for the purposes of accountability. Or you might think about becoming a community interest company (CIC). The Department for Business, Innovation and Skills offers advice on this legal form, which was designed for social enterprises, on its website
Of course, if you’re a regular SME that already trades for more than profit and that has a particularly strong social mission at your heart, you could just continue to operate as you are without declaring yourself explicitly to be a social enterprise. After all, most small firms work at the heart of their communities, offering some sort of help and support to the immediate society in which they live. Entrepreneurs are social by definition, relying as they do on relationships and networks. But being a social enterprise does tell the world that you practise what you preach. And consumers appear to be increasingly favouring those who operate in the social sphere.
Whatever your choice as a business owner, it’s undeniable that social enterprise is a force that is here to stay, and it shows that good business can go hand-in-hand with good works. And society as a whole can only be the better for that.
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