Social Enterprise

A business that doesn’t return profits to its directors or owners, but is a community-owned venture whose profits are either reinvested or otherwise used for public benefit.

Social enterprises are a growing feature of the UK regeneration scene, with Government blessing, not least as with potentially less overheads they can deliver public services more cheaply, and take on key local businesses like pubs and village shops.
The debate about how to use diminishing Government revenues is another thing! Social enterprises will not succeeed unless they meet a real local need, and are business-like in their approach.

“Business” is the key word, as while there may be particular local opportunities for social enterprise, they have to make a profit (“surplus”) like any other business. This needs someone with an entrepreneurial approach to develop the business – that may sound obvious, but not everyone in the business world has started a business, many will work in other people’s firms.

On the other hand, while those in the public or voluntary sector may have the right social ethos, they are not necessarily adept at running a social enterprise. One project leader raised thousands for a new community building by focusing on local needs, but then didn’t change focus, and kept services going even when they were in the red.

So some key questions you should ask about a proposed social enterprise (as any other business) are:

  • Who are the proposed customers, and what’s their spending power?
  • Do they want what you’re offering?
  • What is the competition that might take your customers?
  • How long will this business opportunity last – are you going to be providing something that people will want (and pay for) for a long time? If it’s a service contract, how secure is the contract?
  • Can you afford this business – are the set-up or running costs going to exceed your income? (Failure to cover your running costs is the original sin of enterprise)
  • Who is going to run the business – are they the right people, and are they getting the right advice?

There are a number of common constitutional models for social enterprises that control how they are governed:

  •  Companies limited by guarantee – same as any other limited company, whereby if the directors act properly then their only liability in case of financial disaster is limited, usually, to one pound. Registered at Companies House in the UK, where you can get model constitutions (“Memorandum and Articles of Association”)
  • Industrial & Provident Societies – linked to the co-operative movement, where people club together for a particular purpose
  • Community Interest Companies – a new model in the UK, available through the Internet, with a key feature of an “asset lock” which prevents any properties the community run being sold off for private gain.

Some people assume becoming a charity is the way forward, but unless you are only collecting rents from a building, UK charitable status sets severe restrictions on how you can trade or otherwise make money. On the other hand, many national charities won’t consider giving money to local ventures unless they ARE registered charities!

If charitable fundraising is vital, one way forward is this: have your building or any other assets that you make money from owned by a company registered as a charity, but run them through a subsidiary company (not a charity) that covenants its profits to the head charity. This provides the double benefit that if your trading arm goes bust, the asset stays in community ownership. Where’s the catch? Double the paperwork, and double the people too, as your charitable trustees can’t be the company directors.

Whichever model is chosen, the vital element is the people – members of the community who can be truly enterprising. Look for that real enthusiasm, dedication and open-mindedness.