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What is a social enterprise?

In the UK business population, there are a wide variety of establishments. From large corporations and limited companies to sole traders and partnerships, businesses can take different forms. However, one type that is on the rise is social enterprises.

Even if you haven’t heard the term ‘social enterprise’ before, the chances are you will have come across an example of one. Social enterprises aim to tie together the commercial aspect of running a business with social causes to address world issues.

Running a social enterprise can have many benefits, both for you as an entrepreneur and the wider world. In recent years, access to funding for these types of businesses has increased, making it an opportune time to launch a social enterprise start-up.

In this guide, we explore the topic of social enterprises, including how they work and the current state of the market.

What is a social enterprise?

A social enterprise is a business that has a social cause at its heart. For most intents and purposes, it will operate as a traditional business. It will utilise a commercial structure and strategies to generate revenue, but there will be an emphasis on using this to make a difference.

Profit will also still be a priority, but any profit created will be reinvested into the social issue that the enterprise is seeking to address. This is what differentiates a social enterprise from a company that has corporate-social responsibility or sustainability principles.

The social cause being pursued by the enterprise can cover a range of topics but may include sustainability and environment, inequality, poverty, civil rights and healthcare access.

There are also different kinds of social enterprise, including Fairtrade, cooperatives, government and community organisations. Regardless of the type, the common thread will be a focus on the social impact and providing funding to solve issues.

Social enterprises are by no means a new concept, and many well-known examples exist today. We’ve listed a few you may have heard of:

From the examples, you can see that social enterprises can span across industries and value propositions, meaning there are many sources for inspiration if you are looking to launch your own.

How are they funded?

As with any venture, social enterprises require funding to get started. There will be various grants available exclusively to these businesses to encourage the good work they do. They may also secure financing through traditional means, such as loans, if they can provide a commercially viable model and strong value proposition that assures lenders they will receive their money back.

Another common form of funding is through social or impact investing. These sources see investors using their money to back businesses that are making a real-world impact. They will still expect a return on investment, so you will need to ensure you can generate profit and effectively pitch your ability to do so to the investors.

This form of investment is growing in popularity, bringing together philanthropic and financial objectives. There are some networks dedicated to social investing, including the likes of the Big Society Capital or other socially-minded investors. Social Enterprise UK and Big Potential also provide support for businesses seeking funding through investment or grants.

Once you have secured the funding to launch, you will be expected to obtain income through traditional business strategies, such as sales, to allow for healthy cash flow and profit.

How do I start a social enterprise?

Starting a social enterprise is the same as starting any venture. You just need a business model with a clear social mission as its focal point and to reinvest your profit towards it.

You’ll also need to earn at least half your income through trading, be independently run and offer transparency over your operations to fit the technical specification of a ‘social enterprise’.

Once you have pinned down your value proposition and social cause, it is a matter of obtaining the funding to launch and setting up your commercial structure and strategies that will allow you to secure revenue and customers.

There are also many benefits to running a social enterprise that may make it more promising as a start-up idea.

The current state of the market

As we’ve mentioned, social enterprises have been around for some time – as demonstrated by the famous examples in the market. However, particularly as we become more conscientious and aware of society’s issues, there has been increasing attention placed on social businesses. Improved access to funding will also help to scale the social enterprise sector.

Social Enterprise UK offers an overview of the existing market. In its findings, 52% of enterprises reported growth of turnover in the last year, and 76% were able to pay the living wage, suggesting there is excellent room for profit in this sector. It also reports that 42% of social enterprises are less than five years old, indicating this is an expanding arena.

40% of social enterprises are led by women and 35% by those in BAME demographic. In this sense, the types of people we see starting businesses seem to diversify with social enterprises, laying the foundation for better balance within the industry.

Conclusion

Although a relatively tried-and-tested form of business, the increased need for social enterprises and the market’s growth could spell a heightened focus on this sector. With improved access to funding in recent years and more success stories to aspire to, we may find more and more entrepreneurs pursuing social causes in their start-up ideas.

If you seek to launch a social enterprise, we can help you identify appropriate routes of funding, including through social investment. We have a comprehensive database of contacts within the lending and investing markets, allowing us to put you in touch with those who may best help your business.

We can also work with you to improve your investment readiness, including strengthening your business plan and crafting pitches that guarantee success.

Get in touch today to find out more.

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