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Social Enterprise – an Option for your Charity?

Social Enterprise – an Option for your Charity?

Social enterprise has become a familiar term in recent years, but do we know what it is and have we considered if it could support our own charity's mission or sustainability? Is social enterprise something that could work for us in our context in a time of austerity, fewer grants and alternative finance, or should we steer clear?

Social Enterprise is often misunderstood, perhaps because the term is a general one and there are many variations of social enterprise and a host of different legal structures too. In this article we aim to demystify the term so you can consider whether it may be relevant to your charity.

What social enterprise is not

Let's start by being very clear about what social enterprise is not. It is not a particular legal structure, as a social enterprise can have a charitable structure, it can be a community interest company (CIC), a charitable incorporated organisation (CIO), a cooperative society, a company limited by guarantee (CLG) or indeed a company limited by shares (CLS).

A Social Enterprise is not an organisation that relies on grants or volunteers. It can have grants and it can have volunteers, but it would not be a social enterprise if it relied on these completely.

Whilst a social enterprise is a "non-profit" organisation, the term non-profit is not very helpful to those who do not know the detail. A Social Enterprise should aim to make a profit but it is what it does with its profit that really makes the difference.

So, what is Social Enterprise?

To meet the government's definition, and indeed most Social Enterprise support organisations will use this definition, a social enterprise would need to:

  • Have a social or environmental aim or purpose
  • Primarily trade - that is, it should sell services and/or products to customers and this trading activity should make up more than 50% of its overall income.
  • Primarily re-invest its "profit" in its social or environmental aim - that is more than 50% of its profit

  • A Social Enterprise therefore is a model (or way) of doing business. It gains most of its income (more than 50%) from trade and ensures most of its profit (more than 50%) is spent on its social or environmental purpose. Many Social Enterprises will of course re-invest all its profit, but if it invests most it will meet the criteria.

    So how does Social Enterprise and charity work?

    As noted earlier the structure of a Social Enterprise is not the driving factor so it could be a charity. For example, a charity contracting with the public sector may have a range of other grants to work with vulnerable people. If the contracts delivered amounted to more than 50% of its income, it would meet the criteria, as it could not distribute any of its surplus. Being a charity, it would meet a charitable purpose and therefore have a social aim too.

    A Social Enterprise could be a pure business model that trades. For example, BELU Water is a company limited by shares that manufactures soft drinks and sells bottled water to restaurants and other such corporate customers. The profits are then donated (or gifted) to Water Aid which is a charity. BELU has over its life gifted more than £1m to Water Aid.

    A similar (but smaller) example is Chelmund's Fish and Chips, a community owned chip shop (Community Interest Company limited by shares) trading like any other chip shop but gifting its profit to local charities to meet local needs.

    Many Charities set up a "trading subsidiary" that will trade in a similar way, for example a charity coffee shop. The coffee shop may not fit with the primary aim of the charity, so there is a need to have a subsidiary to remove any charity trading restrictions and protect the charity and its resources from the business risks of trading. The purpose of the coffee shop will be to sell coffee and make money to provide the parent charity with unrestricted income. There may be other social benefits too. For example, the coffee shop might employ vulnerable or at-risk people, and might provide a living wage etc, but fundamentally it is a business selling coffee.

    What about your organisation?

    The examples above may not fit with your organisation, but it is worth asking yourself whether Social Enterprise is something that could help, as Social Enterprises can be any kind of business. The key issue is whether it has a social or environmental purpose, primarily trades and, primarily invests its profit into its social aim.

    So, do you have something (a product or service) that you can sell and is there a potential market (customers). If the answer is yes, then it may be worth exploring and considering whether you could build resilience and diversify your income through trading as a Social Enterprise.

    If you would like to discuss the issues raised in this piece, please email or call us now on 01903 723519 for a free chat.

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