Factsheet 2

Social Enterprise FAQ

What is social enterprise ?

The basic idea behind social enterprise is quite simple. It is a business, which is run for the benefit of a community. The important factor is that profits are reinvested into the business or for the benefit of the community. Social enterprises can help to improve local communities. They can be a major contributor in providing income to ensure that a project continues after the end of short term funding, and can also help to develop skills and talents of local people and deliver valuable services.

The type of business being undertaken will fit with the aims of the organisation. For example a food co-op which promotes local food production may sell food locally as part of its activities and provide training in organic food production but may decide not to sell food to a large chain which will result in it being travelled to other parts of the country to sell.

How can I tell if an organisation is a Social Enterprise ?

That depends partly on what it does but also how it is organised and where the profits go. Social Enterprises can be very wide ranging, but all share some common features. The essential elements are that the social enterprise is run as a business and involves some trading, and that it is set up to meet a social objective, rather than for the personal gain of one or more individuals.

Most social enterprises aim to make a profit or surplus over time. Any surpluses or profits will be used to reinvest in the business or to benefit the community.

All social enterprises will

trade - sell products or providing a service

have social aims - aim to improve quality of life in the community, eg help to create a sustainable environment, provide training opportunities for disadvantaged members of the community

be independent - independent of other bodies or public agencies

involve their stakeholders - eg clients, members of the management committee, participate in some way in the running of the social enterprise

reinvest profits - into the enterprise or into the community

Is a Social Enterprise profit making?

As with other types of business, making a profit or surplus is likely to form an important part of running a social enterprise, as it helps towards making it more sustainable in the longer term. This is reinvested in the business or for the community rather than being paid out as profit to the owners or shareholders. In contrast to funds received as grants any income built up from trading is less restricted as to its use provided it fits with the overall objectives of the organisation.

Do social enterprises operate in specific activities ?

No. A social enterprise could operate in retail, advice and counselling, transport, health services, recycling etc., so long as they have the key characteristics of a social enterprise.

How are Social Enterprises set up ?

A Social Enterprise does not need to be in any particular legal and organisational structure. The type of legal and organisational structure of a social enterprise will be chosen depending on its particular needs.

The Department of Trade and Industry has said that most social enterprises come from the following types of organisation: community organisations, voluntary organisations, social firms, co-operatives and other mutually owned organisations, and charities.

The legal structure and ownership can vary. Examples include a charity, a company, an Industrial and Provident Society, a co-operative, a Community Interest Company, a Social firm. For a discussion about different types of legal structure, please see “A what enterprise ?” a beginners guide to social enterprise by Susan Heath’ www.decoda.org.uk/SocEnt.htm

Why set up a social enterprise?

Again this will depend on each individual organisation. Reasons include

• A community wants to set up its own service for local people
• A community group needs to develop new ways of generating income
• A person or group has a good business idea, which they want to use to benefit a particular group or community
• People who want to take a share in running a business that is jointly owned and managed
• A privately run local service or trading activity is being closed down and a community group wants to find a way of taking it on to make sure the service is not lost to the community

What about funding ?

There is no special pot of funding available either for start up or otherwise because an organisation is or is planned to be a ‘social enterprise’. Funding would still be sought from a number of sources depending on the particular project. This could include grant and government funding, as well as income raised from trading as a social enterprise.

Social enterprise is viewed by some as a means to ensure the project will continue in the long term, although many social enterprises have other income streams alongside income from the business.

Nevertheless some grant funders are keen to promote social enterprise so it is possible that specific funding opportunities may become available in the future. There are also a number of organisations in existence which make loans to social enterprise and some trust funds have also indicated that they will fund social enterprise projects.

I want to set up a social enterprise. Where do I start ?

There is lots of information around about social enterprise and a number of useful websites.

“A what enterprise?” a beginners guide to social enterprise’ written by Susan Heath is a useful introduction to the subject with examples of different legal structures. To download a copy go to www.decoda.org.uk/SocEnt.htm