How to set up a social enterprise

See all our how-to guides ready for download as PDFs.

The social enterprise model is an increasingly popular way to launch a sustainable energy scheme, or take an existing project to a new level. By combining the flexibility of a business with a commitment to social ideals, you can deliver benefits to both local communities and the environment. For example, setting up a social enterprise could help make carbon saving in your community self supporting. The community can sell the power created by a renewable energy installation to fund further energy conservation projects in the area.

If you decide that social enterprise is right for you then you won't be alone. Government figures suggest there are 62,000 social enterprises in the UK which contribute £8.4 billion to the economy every year. So, how do you go about setting one up?

What is a social enterprise?
Choosing a legal structure
What skills will we need?
Coming up with a business plan
Finding investment and funding
The pros and cons of setting up a social enterprise
Business support and other useful resources

 

What is a social enterprise?  

Social enterprises are businesses created specifically to address an environmental or social need in society. Like other businesses they have to compete in the market to make money. But instead of creating value for shareholders or owners, any profit goes towards benefiting the communities or causes that they serve.

 

Is it a suitable structure for our project?   

As well as helping good causes, social enterprises are businesses that have to create regular income in order to survive. If you're starting the project from scratch you'll need to think hard about whether there's a genuine market for the goods or services that you offer.

If you represent an existing organisation looking at social enterprise status then you'll need to consider the transition towards a more commercial way of thinking. One of the best ways to see whether social enterprise is for you is to get in touch with an existing enterprise and talk through what they do. The Energy Saving Trust's unique project database provides instant access to case studies covering all kinds of community energy schemes. Find out where their funding came from, who was involved and the key lessons that were learned.

Also, take the time to ask some key questions:

Do people really want the goods or services that you offer? It's essential that there's a public demand for your services as well as a social need. For instance, your local community may welcome a wind turbine, but will you be able to sell the energy you produce to the national grid?

Is your organisation ready for a commercial culture? If you already have a team of volunteers in place they'll need to accept the importance of regular meetings, annual reports and business plans alongside community work.

Are you clear about your social purpose? A real understanding of how you will benefit the community is what sets social enterprises apart from traditional businesses.

Do you have an entrepreneur on the team? Making a social enterprise work takes passion, energy and commitment. You don't have to be the next Alan Sugar, but some entrepreneurial talent will help you survive if times get tough.

 

Choosing a legal structure  

A social enterprise can take on a variety of forms, all of which have different legal structures. The legal structure you decide is right for you depends on the social purpose of your enterprise and how you think it should be run.

Choosing a legal structure can be daunting. Each model has implications which can have far-reaching consequences for the future of your enterprise. It's best to sit down with a legal specialist before you commit, so look out for organisations like LawWorks and Co-operative Futures that can offer free legal advice to charities and social enterprises.

An at-a-glance guide to the differences between each structure is available to download here.

The Social Enterprise Coalition also publishes a guide to understanding legal structures.

Below is a general overview: 

Unincorporated associations are informal groups that come together for a common purpose, but have no legal identity. As a very basic organisational structure, unincorporated associations can't buy property, and individual members are liable for contracts or loans.

Trusts are managed by trustees who act on behalf of communities for whose benefit the trust has been set up. Trusts have a trust deed which outlines their social objectives and provides details of where the trust's assets can be used. Trusts are legally allowed to own property, so can complement unincorporated associations.

Limited companies with a social purpose are businesses with an 'object' clause that details their social or environmental objectives. Members' liability is governed by shares (as in a company limited by shares) or by a guarantee (company limited by guarantee).

Community interest companies (CICs) are limited companies created for the benefit of a community rather than shareholders or owners. This legal structure was designed specifically for social enterprises. CICs are required to ensure profits are retained within the company and must prove they are working towards their social purpose by delivering an annual report. For more information see www.cicregulator.gov.uk.

Registered charities are organisations with goals that are exclusively charitable and exist for the public benefit. This legal structure can be appealing for many social enterprises because of the tax relief available. However, registered charities sometimes face greater regulation than limited companies and may be less flexible.

Click here for frequently asked questions on how to set up a charity.

Industrial and provident societies are a common legal form for community benefit societies and co-operatives. Social enterprises taking this form are collectively owned and run by their members for the benefit of the community or cause that they serve.

Depending on the legal status you choose, you may have to register your social enterprise with an official body. All limited companies have to be registered with Companies House, while details of industrial provident societies must be sent to the Financial Services Authority.

 

What skills will we need?  

Running a successful social enterprise requires a wide variety of skills, from sound business sense to effective communication with the community that you serve. Of course, it's unrealistic to expect one person to have all the relevant skills. It's more likely that there's a small team of people who all possess different strengths.

A list of typical skills necessary for the day-to-day running of a social enterprise includes:

Leadership skills: A confident, charismatic individual with bags of energy can motivate volunteers and be an ambassador for your enterprise.

Team work: Individual members must be able to work together in order to achieve shared aims.

Financial skills: Experience of basic finance, like working to a budget and monitoring cash flow, is essential to make the business work.

Communication skills: A social enterprise has to clearly and effectively communicate with everyone from those involved in the business to people the enterprise has set out to benefit.

Problem solving skills: Finding flexible solutions to everyday problems allows a business to continue moving towards its community goals.

 

Other things to consider   

As your social enterprise grows there are tasks which require more specialised professional skills such as book-keeping, marketing and sales. At this point some social enterprises take on extra volunteers to do the work, while others contract the tasks to professionals or aim to train people already within the business.

If you're interested in using UK volunteers contact The National Council for Voluntary Organisations, who can offer help, advice and volunteering guidelines. For enterprises in Scotland, Wales and Northern Ireland visit the SCVO, WCVA or NICVA respectively.
When interviewing potential staff or new volunteers it's important to ensure candidates share the vision and values that inspired you to set up as a social enterprise in the first place.

Areas in which you may need help include:

Marketing: Marketing professionals ensure that your enterprise is supplying the right goods or services to the right people at the right time. They can offer market research, organise advertising campaigns, manage public relations and promote the enterprise to a wider public.

Sales: At the start-up stage existing staff may have been able to make sales, but as the enterprise develops a dedicated sales team can ensure opportunities aren't missed and the business continues to grow.Book-keeping: By law you are obliged to account for the way in which your social enterprise spends money. Keeping accounts in good order means you'll have a better idea of where you stand financially and can prove your profitability to potential backers.

Law: Social enterprises have to take account of health and safety laws and legal issues that may arise when drawing up employment contracts or buying property. Social Enterprise Training and Support has an online database where you can find legal advice in your area, and The Social Enterprise Coalition can offer practical guidance.

 

Coming up with a business plan  

Getting a clear business plan down on paper will give you confidence in the project and help your social enterprise gain financial credibility. It can also highlight the strengths and weaknesses of your core ideas, provide a realistic account of your financial situation and highlight goals for the future. A business plan doesn't have to be set in stone; it should change as the business develops.

A good business plan should include:

  • a brief summary of the social enterprise including a mission statement explaining your beliefs and values
  • information about key staff including skills, experience and the roles they play in the business
  • your organisational structure, the division of responsibility and management policies
  • market research data outlining the market you are attempting to reach with your goods or services
  • details of where the business is based (such as an office or shop) plus relevant insurance and legal information about your premises
  • financial data including a budget with projected income and expenditure, a balance sheet, a cash flow forecast and information on how you intend to raise money.

The business plan should also include appendices featuring members' CVs, funding letters and other supporting material.

 

Tips on writing an effective business plan

Write for a target audience: How you present your business plan depends on who is going to be reading. For instance, financial backers might want detailed breakdowns of individual figures, while potential supporters may need more information about your social purpose.

Be clear and concise: People reading the plan might not have specialist knowledge of your sector, so avoid jargon and waffle.

Prepare to be challenged: Get ready for your audience to question the effectiveness of your ideas and prepare some responses in advance.

Prove that you have a Plan B: Outline a backup plan in case the market changes, or your idea doesn't work out in the way you wanted.

Be honest: Exaggerating your strengths could lead to trouble if you have to prove any claims made on paper.

 

Finding investment and funding  

Whether you're applying for a business loan or seeking new investment, the chances are you'll need some kind of funding in place to achieve your social aims.

Some common sources of funding include:

Independent trusts and foundations. These independent bodies give an estimated £3 billion to community organisations each year. To find one relevant to you visit www.funderfinder.org.uk.

Community foundations. These local organisations support causes active in their area.  

The National Lottery Fund. The lottery donates £25m to good causes every week, but competition for that money can be fierce. Find out here how you can apply.

Government funding. You can search for funding from the UK government here. The Scottish Government gives grants to community groups aiming to reduce their carbon emissions through its Climate Challenge Fund. The Welsh Assembly Government also runs environmental grant schemes. For government grants in Northern Ireland, search the Government Funding Database.

Banks and finance associations. Ethical financial institutions can offer help, advice and finance tailored towards social enterprises. Examples include Triodos Bank and UKSIF.

Social or community bonds. A relatively new way for social enterprises to raise money, community bonds collect cash from investors working towards a shared goal, such as a community energy project. The money is held in a bond for five years, where it benefits the enterprise, before being returned.

Advice on applying for funding

Do your research: By finding out about a funder beforehand you can rule out those that don't deal with your kind of social enterprise, or can't offer enough cash.

Be accountable: In your letter or application form show exactly why you need the money and where it will be spent.

Keep it concise: Get the benefits of your project across without any waffle. One side of A4 should be enough space to state your main aims. Remember to ask someone else to proof-read the application before you send it out.

Be professional: Make sure the figures add up and show how you are going to measure the success of your project.

 

The pros and cons of setting up a social enterprise  

Running a social enterprise can be a real challenge. Dealing with day-to-day problems is time consuming, and it can be frustrating when your work fails to have an immediate impact on the community.

However, social enterprises such as  Energy4All, Jamie Oliver's Fifteen and Divine Chocolate have managed to capture the public imagination and produce real benefits for the communities involved.

Even during tough economic times there is plenty of support out there. It's just a case of asking yourself whether social enterprise is the right form for what you want to achieve.

Disadvantages

  • Since social enterprises are businesses, they can fail if the market changes or an idea doesn't work out.
  • It can be difficult to see a social enterprise as both a business and a community organisations
  • As social enterprises grow and new people come on board the original momentum can be diluted or lost altogether.
  • Despite your hard work the social benefits of a social enterprise may take years to appear.

Advantages

  • A social enterprise can be a way to avoid dependence on funding and volunteering, allowing your carbon saving work to be self supporting by using the income it generates.
  • Because social enterprises are more flexible than charities they can support innovative ways to achieve a social purpose.
  • Social enterprises attract passionate people, so they can be genuinely inspiring places to work or volunteer.
  • Social enterprises offer a way for finance-savvy people to use their skills and make a difference to the community or the environment.
  •  It's satisfying to take part in a project that genuinely makes a difference to society.
 

Business support and other useful resources  

The following organisations can offer practical help and advice on setting up a social enterprise. They may be able to put you in touch with members who have similar social aims to your own.

The Energy Saving Trust can provide help, advice and support for social enterprises working with sustainable energy sources.

Co-operatives UK offers help and advice to new and existing co-operatives.

The Social Enterprise Coalition works to promote social enterprise and inform government policy.

The Social Enterprise Partnership aims to raise awareness of social enterprise and promote good working practice in the sector.

Unltd is a UK charity set up to highlight the work of social entrepreneurs.

The Office of the Third Sector has news on up-to-date legislation for social enterprises, plus advice on new funding.

The School for Social Entrepreneurs provides training and other opportunities for social enterprise workers.

Finance

Some financial institutions can offer tailored support to social enterprises, whether it's giving advice on creating a business plan or providing loans and mortgages.

Business Link has a step-to-step guide on the financial and legal side of setting up a social enterprise.

CAN provides specialist investments for social enterprises as well as conference rooms and office space.

Charity Bank puts investors and savers in touch with organisations working for good causes within the community.

Triodos offers ethical savings, loans and investments that benefit socially responsible organisations.

UKSIF offer a range of socially responsible investments for charities and social enterprises.

Publications and websites

Where to go for job adverts, advice and the latest news.

Social Edge is a lively site for discussion about issues facing social enterprises.

Social Enterprise Ambassadors promotes social enterprise by highlighting the work of a diverse range of businesses.

Social Enterprise is a magazine with news, comment and features covering the sector.

Third Sector is a trade magazine featuring jobs, current news and debate.

Read or download our guides for step-by-step instructions on running a successful community energy project

 

LEAF

The Local Energy Assessment Fund aims to support communities across Wales and England. Although applications for funding are now closed, LEAF still has useful information about seeding community energy action.

Visit the LEAF website.

The Ynni’r Fro Programme provides support and funding to encourage the development of community scale renewable energy schemes across Wales.