Social enterprise – how to launch a business on a social mission

A social enterprise is a business on a mission to solve a social problem. From reducing the amount of waste we chuck away in landfill to boosting employment in the local community, the main goal of a social enterprise is to help people, communities and the environment.

Social enterprises are an emerging trend. Just under half (42%) of social enterprises are less than five years old, compared to an average of 14% for SMEs, according to a 2019 report by Social Enterprise UK opens in new window

The report found that nearly nine in ten social enterprises aim to minimise their environmental impact, with 65% focusing on sustainability and environmental processes within their organisation, compared to just under half of SMEs.

While the core mission of social enterprises is to improve lives and livelihoods, that doesn’t mean that they are relegated to poor commercial performance.

The report found that 52% of social enterprises grew their income in 2019 compared to just 34% of SMEs, and nearly half (48%) of social enterprises made a profit in 2019.

The latest report into the state of social enterprises – Social Enterprise: Market Trends opens in new window – estimated there were around 470,000 social enterprises in the UK in 2017.

This is equal to around 9% of all small businesses.

 

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What is a social enterprise?

A social enterprise is a business on a mission to address an issue, such as an environmental concern.

They are different from charities because they operate commercially by selling products and services and don’t accept donations.

Day-to-day they operate much like a traditional limited company, although profits support their environmental or social goals.

Social enterprises vary in size, from small businesses upcycling or recycling products to housing associations, credit unions and leisure trusts.

Examples of well-known social enterprises include The Big Issue opens in new window, which supports homeless people through its magazine sales, through to organisations such as the Eden Project.

Social Enterprise UK found that social enterprises contribute around £60bn to the UK economy opens in new window.

 

How to launch a social enterprise

 

1. Start with your mission

At the core of any social enterprise is a mission. What is it you want to change or an issue you want to solve?

This could range from helping disadvantaged groups into employment who may find it hard to secure a job, such as ex-offenders, to providing access to fairer loans to people living in deprived communities to support levelling up.

A good place to start is identifying what you feel passionate about and the change you’d like to see.

 

2. Research your market

A social enterprise operates in a similar way to a traditional business.

That means you need to find out if there is a demand for your business, what competitors exist and learn more about potential customers.

While you should communicate your social mission, you can’t rely on it to pay your business costs.

While your mission can appeal to customers, you still need to ensure enough demand, and your business can effectively compete.

Learn more about what market research is opens in new window with our guide.

 

3. Write a business plan

A social enterprise aims to generate awareness and – crucially – revenue that can be used to support your mission.

You’ll need to create a robust, detailed and costed business plan.

This should include your cash flow projections and assumptions such as sales forecasts and customer spending.

You should detail how your social enterprise will operate, how it will be structured, and include your social mission, such as how you will use any profits for fund change.

Download our free business plan template opens in new window to help get started.

 

4. Choose the right legal structure

There is no legal requirement for how you form your social enterprise, though a commonly used legal structure is a Community Interest Company (CIC) opens in new window.

This has been created specifically for social enterprises designed to benefit a specific community or the environment.

CICs are regulated to ensure they continue to adhere to their social purpose.

The benefits of incorporating as a CIC include:

  • Access to funding – certain finance and grants are only open to CICs.
  • Director control – unlike charities, CIC founders can retain control over the business and receive a salary.
  • Light touch regulation – compared to charities, CICs are subject to light-touch regulation and governance.

Disadvantages of incorporating as a CIC include:

  • Lack of tax breaks – CICs are not able to utilise charitable tax breaks such as gift aid.
  • Dividend restrictions – there is a cap of 35% of profits that can be paid as dividends.
  • Lack of awareness – the CIC model is relatively new, and there is less public awareness.

Alternatively, you can set up your social enterprise as a limited company, a co-operative society, a charity, a sole trader or an unincorporated association.

The latter is suitable for very small enterprises, such as a sports club or voluntary group.

 

5. Obtain funding

Raising finance for a social enterprise can be challenging.

Set up as a CIC, for example, and dividend payouts are capped to shareholders.

Profits should be reinvested in social good, which can limit interest from investors looking to grow their investment.

Many start-up social enterprises rely on founders putting in their own money or on loans from family and friends.

Some organisations support funding social enterprises, including Start Up Loans opens in new window and the Seed Enterprise Investment Scheme opens in new window.

The Social Investment Business Group opens in new window has a list of grants available for social enterprises, while the Community Development Finance Institutions (CDFIs) opens in new window provides investment for businesses operating in disadvantaged communities.

In Scotland, Social Investment Scotland opens in new window and Firstport opens in new window both offer funding for social enterprises.

 

6. Promotion

As with a traditional business, you’ll need to create a marketing plan to attract customers.

Use your social mission as the foundation for your marketing, and develop a PR campaign to raise awareness of the issue your social enterprise is trying to tackle.

You are more likely to get coverage in local newspapers if your business is actively helping the community.

Ensure that you measure how well your marketing performs so you get a positive return on any money you spend.

 

7. Get support

Running a social enterprise can open a whole world of support.

Many organisations and groups offer support to social enterprises, including Social Enterprise UK opens in new window, Inspire2Enterprise opens in new window, Unltd opens in new window, Social Enterprise Scotland opens in new window, and The School for Social Entrepreneurs opens in new window.

8. Keep focused

Most social enterprises are set up by entrepreneurs who are passionate about their social mission and are prepared to work long and hard to achieve their goals.

Sometimes, however, this can lead to overworking and burnout, threatening the social enterprise’s existence.

It’s important to look after your mental health opens in new window while running any business.

Be sure to pay yourself a proper wage and take time out to spend with friends and family, as this will help you feel refreshed and more productive when working.

 

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This article and the content provided therein is exclusively for informative purposes. Nothing in this article or in its contents is intended to provide advice of any kind (including legal, financial, tax or other professional advice) and should not be relied on as such. You should get professional or specialist advice before doing anything on the basis of the content contained in this article.

 

 

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