Social enterprise FAQs
1. What are social enterprises?
Have you ever bought the Big Issue? Read it over a bar of Divine chocolate with a cup of Cafe Direct coffee? Watched Jamie Oliver’s Fifteen? Visited the Eden Project? Shopped at the Co-op?
Well, then you already know a bit about social enterprises: businesses that are changing the world for the better. Social enterprises are in our communities and on our high streets – from coffee shops and cinemas, to pubs and leisure centres, banks and bus companies.
Social enterprises trade to tackle social problems, improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. And so when they profit, society profits.
Read the short guide - Social Enterprise Explained - to find out more.
According to Social Enterprise UK, social enterprises should:
Have a clear social and/or environmental mission set out in their governing documents
Generate the majority of their income through trade
Reinvest the majority of their profits
Be autonomous of state
Be majority controlled in the interests of the social mission
Be accountable and transparent
More detail about these points can be found in the short paper - What makes a social enterprise a social enterprise?
The Big Issue, the Eden Project and Jamie Oliver's restaurant Fifteen are examples of social enterprises. So are award-winners Divine Chocolate, a fair trade chocolate company co-owned by the cocoa farmers cooperative KuapaKokoo in Ghana and Timewise, which connects professionals with flexible employment opportunities.
Social enterprises operate in a range of industries - Cafedirect is the UK's largest Fairtrade hot drinks company; The Elvis & Kresse Organisation (EaKo) takes industrial waste materials, turns them into stylish luggage and hand bags and donates 50% of the profits to the Fire Fighters Charity; Hill Holt Wood educates at-risk youth in an ancient woodland; Central Surrey Health is a pioneering social enterprise in the healthcare world that is run by the nursing and therapy teams it employs.
3. What does Social Enterprise UK do?
We are the national body for social enterprise. Together with our members we are the voice for social enterprise. Working with our members, we:
Raise awareness of social enterprise and what it can achieve through the media and campaigning.
Influence politicians across the spectrum, generating support for social enterprise. Political engagement has been the bedrock of our work and we continue to have great success pushing social enterprise up the policy agenda.
Organise the annual Social Enterprise Awards.
Run a number of programmes, including Social Enterprise Places, which recognises social enterprise towns, cities and villages in the UK.
Lead the Buy Social Corporate Challenge is working with big businesses who are collectively aiming to spend £1bn with social enterprises by 2020. We also work with private sector organisations who want to explore or consolidate their position in the growing social enterprise market.
4. What is the history of social enterprise?
The pioneers of social enterprise can be traced at least as far back as the 1840s, in Rochdale, where a workers' co-operative was set up to provide high-quality affordable food in response to factory conditions that were considered to be exploitative.
In the UK, a resurgence of social enterprise started in the mid 1990s with the coming together of different organisations, including co-operatives, community enterprises, enterprising charities and other forms of social business, all united by the prospect of using business to create social change.
5. What data is there on the size of the social enterprise movement?
The best government data estimates that there are approximately 70,000 social enterprises in the UK contributing £18.5 billion to the UK economy (based upon 2012 Small Business Survey, 2013) and employing almost a million people.
More detailed data can be found in the State of Social Enterprise Report 2015 - here are the top line findings:
A dynamic movement: Close to half (49%) of all social enterprises are five years old or less. 35% are three years old or less – more than three times the proportion of SME start-ups. In terms of new business formation in the UK, social enterprise is where the action is.
At the forefront of economic recovery: The proportion of social enterprises that grew their turnover over the past 12 months is 52%. A greater proportion of social enterprises are growing than mainstream SMEs (40%).
Making a profit, making a difference: 50% of social enterprises reported a profit, with 26% breaking even. Almost all use the majority of those profits to further their social or environmental goals.
Focused where most needed: 31% of socialenterprises are working in the top 20% most deprived communities in the UK.
Operating globally: The proportion of socialenterprises that export or licence has grown to 14%. For over 1⁄3 of these, international trade accounts for between 11% and 50% of income
It’s all about business: 73% of social enterprises earn more than 75% of their income from trade.
Stronger than ever in public services: 27% of social enterprises have the public sector as their main source of income, an increase on 2013 and 2011. 59% of social enterprises do some business with the public sector.
Innovation pioneers: The number of social enterprises introducing a new product or service in the last 12 months has increased to 59%. Among SMEs it has fallen to 38%.
An inclusive and diverse leadership: 40% of social enterprises are led by women; 31% have Black Asian Minority Ethnic directors; 40% have a director with a disability.
Job creators: 41% of social enterprises created jobs in the past 12 months compared to 22% of SMEs.
Not just any jobs: 59% of social enterprises employ at least one person who is disadvantaged in the labour market. For 16% of social enterprises, this group forms at least half of all employees.
Paying fair: The average pay ratio between social enterprise CEO pay and the lowest paid is just 3.6:1 – for FTSE 100 CEOs, this ratio stands at 150:1.
Not getting in on the Act: 49% of social enterprises operating in public sector markets say they’re yet to see it arrive in tender documents – there is much to do before the Social Value Act works as intended.
Appropriate funding and finance still key: 44% of social enterprises sought funding or finance in the last 12 months and 39% believe its lack of availability is a barrier to their sustainability. Just 5% of SMEs think access to finance is a barrier.
6. What's the difference between a social enterprise and ethical business?
The two are distinct ways of doing business. A social enterprise's primary purpose is its social and/or environmental mission – it tries to maximise the amount of social good it creates balanced against its financial goals. An ethical business however, attempts to minimise its negative impact on society or the environment.
7. What are the legal structures for social enterprises?
Social enterprises use a wide variety of legal forms. To see a full list and their pros and cons, as well as more information about the things you need to consider when starting a social enterprise, read the guide: Start your social enterprise.
8. Where can I get advice on starting up a social enterprise?
As with any other business, setting up a social enterprise will often require substantial advice and support. Social Enterprise UK has developed a range of publications including Start your social enterprise which will provide you with some information on the legal structure and streams of finance you may want to consider.
If you are in need of free business support and advice, please contact Inspire2Enterprise.
Whether you’re looking for finance to start, grow or move into social enterprise, there are a number of different types of finance available, each with their own advantages and disadvantages. Finance for social enterprises range from grants to social investment, with many different options in between. In our advice and support section you can find a comprehensive list of organisations that provide finance and funding.
10. My organisation is a charity, how can I turn it into a social enterprise?
Firstly, we need to bust a myth. A registered charity can still be a business. Many charities are social enterprises through and through: they don’t rely on grants and donations, but instead earn the bulk of their income through selling goods and services.
HCT Group, London Early Years Foundation, Turning Point, Sandwell Community Caring Trust – are all social enterprises with charitable status. If your charity raises most of its income by trading it probably already is a social enterprise. In which case, welcome to the social enterprise world! Do join us or sign up for more information using the links above.
If this is not the case then turning a charity into a social enterprise is principally about changing the funding / business model of the organisation. This means moving away from being dependent on grants and donations to generating more of your income through trading – selling goods and services. Read our guide for charities interested in social enterprise.
There is no single regulator for social enterprises. Unlike charities, social enterprises take a range of legal forms so they are regulated by a range of different bodies. For example:
Community Interest Companies are regulated by Companies house and the Community Interest Company Regulator
Standard companies limited by share and guarantee are regulated by Companies House
Social enterprises with charitable status are regulated by the Charity Commission
In the end, being a social enterprise is about adopting a set of operational principles. These include:
Having a clear social and/or environmental mission (set out in your governing documents)
Generating the majority of your income through trade
Reinvesting the majority of your profits to further the social mission
This is regardless of what form the organisation takes. So if you have these in place – you are acting as a social enterprise. There is no social enterprise regulator, but if you do want to identify as a social enterprise, join Social Enterprise UK and you will receive a social enterprise badge to use in your electronic and printed materials.