Social Enterprises: Doing Good and Making Profit

Welcome to this week's episode of Creative

Passion to Profit, and in today's podcast

episode, I'm gonna be diving into the world

of social enterprises.

Now before you switch off, thinking this is all

about fluffy feelings, charity, tea dances, and

about doing good stuff.

Just hold on a minute.

I'm gonna be talking about businesses.

Yeah, businesses that make money IE

profits and actually make a difference.

So grab yourself a drink of choice.

Put on those headphones if you're out running.

Keep those hands on the steering wall

if you're driving.

And let's crack off.

Now, did you know there are over a hundred

thousand plus social enterprises in the

United Kingdom alone?

They contribute humongous amounts of

money to the economy.

They employ an immense amount of people here,

and they are sectors, they are businesses in

their own right from generating several

thousand to several million pounds worth

of profit and turnover.

That's not a small change, that's an immense

impact that's being made.

So yes, social enterprises do matter

both financially, socially, and

economically.

Now, in today's episode, I'm gonna be focusing on

understanding what social enterprises actually are.

How they differ from traditional businesses

or charities for that matter, and the types

of business models and legal structures

that exist that you may wish to adopt.

Now, this episode is essential if you're

thinking of starting one, working for one,

or advising one, and I've been very fortunate

in my 30 years plus in business of working

with organizations of various types from

social enterprise.

To charities, to private businesses as well.

Now, firstly, what is a social enterprise?

It's very often misunderstood.

It's not just about being good and

doing good stuff.

It's a business that exists to solve a social

or an environmental or a community problem.

I. While at the same time making money, those

two go hand in hand.

Yes, it makes money and it's the profits that

are generated that are there to support the

mission, not just in somebody else's pocket.

A bit like this, if a private business

says How much profit can we make, A social

enterprise will say.

How much good can we do with the profits

that we generate?

Social enterprises sell goods and services just

like any other business.

They have the same challenges.

They adopt business practices, but it's what

they do with the money is where things change.

Profits are reinvested into their calls, whether

that is supporting vulnerable people

protecting the planet.

Or creating fair work and opportunities for others.

Now, it's important to emphasize charities

are not necessarily social enterprises.

Charities, a great deal of them will

rely predominantly on donations or

grants to operate.

They don't necessarily, all of them operate

commercially.

But they operate in ethical lines.

The monies that they generate are going

towards a charitable purpose here, but

a charity is not necessarily a social

enterprise, and a social enterprise is not

necessarily a charity.

Let me have a look at the main models that

are currently used in the United Kingdom.

I. Model number one is a community

interest company or a CIC for short.

Now this is one of the most popular social

enterprise models operating in the United

Kingdom, and it's designed for businesses

that wanna make a profit but use it for community.

Good.

I've personally seen a growth in the use

of CICS over the last 10, 15 years.

They still represent a small proportion of the

overall companies that are incorporating the

United Kingdom, but they are a growing model.

Now these are designed for businesses that

make profits, wanna make a profit and

should be making a profit, but use those

profits of community.

Good.

So what makes a CIC different?

Well, from the beginning, when you create A CIC,

you have to show a clear community purpose.

You have to file a community interest

statement when you register and you commit

to something called an asset lock, meaning those

assets and profits that the organization has.

Must go to another beneficiary organization.

Those assets and resources are not to

be used for the benefit of the individuals.

If your CIC ceases to exist, then typically,

and certainly what we would recommend is

those assets that you built up go to another

beneficiary organization, but the resources are

there for the benefit of the community.

Not for the individuals who run the CIC.

Now in itself there are two types of cis.

You will encounter more of this in next

week's podcast, but for now, lemme give

you a brief overview.

You either have a CIC that's limited by

guarantee, or you have a CIC that's limited

by shares, which means you can attract private

investment and that means it's possible

to distribute profits by way of dividends.

To those individual investors or

corporate investors.

A CIC is a bit of a hybrid, a halfway house

between a charity and a private company.

It's not unusual, by the way, for a charity to

actually have a separate subsidiary or an entity

that's constituted as a CIC to run their trading

commercial activities.

Risk taking is permitted without putting the

charity assets at risk.

The second model is the cooperative model.

And again, I've seen a growth in the cooperative

model over time, and this model puts power in the

hands of its members, not just an individual

group of directors or the boardroom.

It's based on democracy and equality.

Each member has a say as to how those profits are

distributed and shared.

Members can be staff, customers,

or the community.

Those popular example of a cooperative society,

surprising enough is the co-op supermarket,

fair Trade businesses, energy cooperatives,

community pumps.

They all follow these rules, and the core

principles are one member, one vote,

shared ownership, and collective benefit.

It's perfect if you want that idea of

shared control and a strong ethical backbone.

Another model is the Community

Benefit Society.

It's a type of industrial providence

society or an IPS.

An IPS or Community Benefit Society is

regulated by the financial conduct

authority, not company's house, which is the

regulator for most corporate bodies.

Now, a community benefits company.

Can raise money through community shares,

apply for charity like tax benefits.

Typically, it can be exempt from corporation

tax on any surplus that are generated.

And it embeds this idea of community democracy

in its structure.

So if you're thinking of setting up a shop in of

your village, your town.

A renewable energy project or a sports

club, then this model might be ideal for you.

Now, one other model I need to mention here

is a private company itself can actually be

a social enterprise.

You don't actually have to be A-C-I-C-A

charity or a co-op to be a social enterprise.

Even a standard limited company can be one, but

it's the commitment, not just words for

the sake of it.

Where it commits to social aims and reinvest

the profits accordingly.

You need to have a clear mission statement at

ethical practices and a transparent way of

showing what you do.

Now, private companies in themselves, lots of

people use that phase where you know, we

have good intentions.

I. We are social enterprise in nature,

but you actually have to show and demonstrate

a proportion of those profits are going

towards social good.

You need to build trust with funders

and audiences.

There's no asset lock or legal obligation

to reinvest profits unless you say so.

My personal preference is.

Is that if you are taking social enterprise

seriously, then do not do a private company.

Now, there is also the idea of A CIO, all these

acronyms floating around a charitable incorporated

organization.

Now, a charitable organization has the

benefit of any accounts that are submitted.

Only go to the Charity Commission as opposed

to a lot of charity companies will submit

documents and accounts to company's house

as well as two.

The Charity Commission itself, one filing is all

that's needed now, the CIO is a structure that's

only for charities.

It's regulated by the Charity Commission.

It gives that legal status, limited

liability, the ability to access things like

gift aid, business rates, relief.

Profits if they're used for charitable

purposes are exempt.

Now, this is a more complex model in

the sense of the time it takes to

get incorporated.

There's a much longer lead time

between submitting an application and getting

that charity status.

There's more obligations placed on the

individual trustees and directors compared

to other social models that we've outlined.

You've got her charitable aims, public

benefit, and trustees.

You can't just set one up willy-nilly overnight

and the time taken.

Can range anything from a few weeks to several

months between submitting the application and

getting approval.

Now, how do you decide which model

you should choose?

Now, for me, it's this idea of substance

follows form.

You always have got to consider what you

are planning to do.

Start with your purposes, what your objectives

are over say the next two or three years,

what's your main goal?

Who are you helping?

How are you gonna raise money?

Do you want outside investment?

Do you want restrictions placed on you

and your fellow?

Trustees have a business and a financial

activity plan and then decide the structure

that best suits.

Now, it's not unusual, by the way.

If you think charitable status is your long-term

goal, you might set up a CIC to begin with,

and then you can convert that to a charity down

the line, get the model role, and that might

deny you opportunities.

It might have an impact on tax.

And it might have an impact on accessing

funding and other such matters as well.

Now, social enterprises are not soft,

fluffy, or weak.

They are businesses.

Their objective is to make profits, but it's

what those profits are used for that

differentiates them from their private sector.

Cousins, they're smart.

Impactful and essential.

They run schools, they create jobs, they

build communities.

They clean oceans.

They have an environmental impact,

and yes, they pay wages, they file

taxes, and they grow.

Now, whatever your choice is, what matters

fundamentally is your mission and how you

use those profits.

So if you are ready to blend purpose

with profit, a social enterprise model

could be for you.

Now, final thought, if you are running

or planning a social enterprise.

Maybe you worked with one or want help

with setting one up.

Well speak to your advisor or speak to us.

We have dealt with social enterprises for nearly

three decades here.

Check out the show notes, book a call.

We'll help you choose the right structure,

build a sustainable plan, and stay compliant

while staying true to your mission.

Until next week, folks, plan it,

do it and profit.