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Setting up a social enterprise

Looking to improve your income? Wanting to learn new skills and face new challenges to impress when you apply for a job? Or do you have a burning ambition to be your own boss long term, to make an impact, to meet a particular need or further a cause? Whatever your motivation, a lot can be gained by starting up a small social enterprise.  This recipe will help you start the ball rolling.

Also don’t miss our recipes: “Funding a social enterprise” and “How to attract funders to invest in your social enterprise” to show you where to sources funds, and Creating a Business Plan” to take things further.

Serves – anyone wishing to set up a social enterprise or charity

Preparation – time taken to prepare your social enterprise vision

Cooking time – from seven days upwards

Photo courtesy of Flicr
Photo courtesy of Flicr

 

 

 

 

 

 

 

Ingredients

  • Social mission
  • Skill set
  • Personal attributes
  • business partner
  • financial viability
  • market research
  • gap in the market
  • assess the competition
  • alternative  business idea
  • start-up funding
  • legal structure

Method

  1. Describe your social mission in accessible language. It should explain and justify the value of the social change you aim to bring about. Describing, who you aim to help, and how you are going to go about it, and how will know what difference you are trying to make. For example “to enable disadvantaged children and young people to learn to play a musical instrument” or “to provide art therapy for people with dementia”.  This will be needed to help convince others of your cause, including registration bodies, potential funders, social investors and customers.

 

  1. You will need to have an appropriate skill set to run your own social enterprise. For any business you will need to be good at oral and written communication (including pitching your product to customers, funders and investors).  You will need to have good administrative skills for accurate and disciplined record keeping – mistakes can lose customers and funders, and money!

 

 3. Now, take stock of your personal attributes: you need for example to be methodical, perseverant, good at multi-tasking, a flexible      worker, self-reliant, calm, with good people skills, sensitive to others’ needs, decisive, and good at spotting opportunities. Being innovative  helps a lot as well.

 

  1. You will of course also need the skills and attributes that pertain to your venture, whether it involves IT, homeopathy or mountain climbing!

 

 

  1. If you lack any of these skills or attributes don’t give up, you could either learn them or adapt, or find a business partner whose skills complement your own. For example you may be great keeping things going behind the scenes but eschew pitching your product in front of an audience. If you could find a person with the latter skills and attributes and you can get on with them, you could have a winning formula.

 

  1. Get a good idea of the likely financial viability of your business model. Check there is sufficient market demand for your products or services by doing market research; you must be able to sell your product if your cash flow is to remain healthy.

 

  1. The key to success can be to spot a gap in the market and tailor your business to fill that niche. Even if you plan to sell something that’s already proved popular, you should still carry out some market research to seek honest feedback from potential customers. This need not be sophisticated or expensive, you simply need to know who your customers will be and what they think about your products or services. Don’t just canvass friends and family, most will be reluctant to criticise, and they probably only represent a small proportion of your market.

 

  1. As part of market research, assess the competition – web-based searches are a good place to start. Also flick through the pages of business directories and local papers/magazines. Even walking around the area in which you’re thinking of setting up may reveal much about the competition you will face.

 

  1. This research may expose important flaws in your business idea, but better to find this out now. You might decide your only option is to think of an alternative business venture or model.  Many successful entrepreneurs have had to work their way through numerous bad business ideas to arrive at good ones. Alternatively, your business idea might simply need a tweak here and there to enhance its chances of success.

 

  1. To take this further, next research and prepare a Business Plan for your venture. At this stage it could be pretty basic, you can add to it later, but its purpose is to be clear in your own mind what you are intending to achieve, whether this is really a viable idea, and what you need to do to get there over the next 1, 2, and 3 years. This will discipline your thinking and activity and help you monitor and measure progress. Also again it will influence funders and investors.

 

  1. Unless you have money to put into the business, you will need to access start-up funding. This may involve different types of loans or grants. Loans will include Social Venture Capital, Venture Philanthropy Capital, Social Banks and Ethical Lenders, and Community Banking. Loans or donations can also be obtained from the public via crowd funding sites. See list below.

 

  1. Alongside this you must choose a legal structure. If you want to set up a business that has social, charitable or community-based objectives, the main options are to set up as a:

 

 

  1. Limited company (which must be registered at Companies House) – this would usually be set up a Company Limited by Guarantee. For details see https://www.gov.uk/limited-company-formation.

 

  1. A charity or a Charitable Incorporated Organisation (CIO), For details see https://www.gov.uk/setting-up-charity/structures and https://www.gov.uk/guidance/charity-types-how-to-choose-a-structure.

 

 

  1. Mutual (eg Industrial and Provident Society and Co-operatives – this type of structure is owned by members and run for their benefit. For details see http://www.uk.coop/developing-co-ops/start-co-operative/plan-your-co-op.

 

  1. Community Interest Company (CIC). https://www.gov.uk/government/organisations/office-of-the-regulator-of-community-interest-companies.

 

 

The following additional structures do not require you to have social, charitable or community-based objectives, you can use them for any private business venture. However with these you may encounter difficulties in convincing customers, funders or social investors that you are a social enterprise.  These are:

  1. Sole trader business (registered with Her Majesty’s Revenue and Customs (HMRC), For details see https://www.gov.uk/set-up-sole-trader.

 

  1. Business partnership, For details see https://www.gov.uk/set-up-business-partnership.

 

  1. Limited company (which must be registered at Companies House) –a company limited by shares. For details see https://www.gov.uk/limited-company-formation.

 

These seven legal structures each have their own eligibility requirements and particular registration procedures. There are several factors to bear in mind when choosing which is best for your organisation, such as whether you want to access charitable grants for projects, charge users or serve members only.

A Charity can only be set up for Public Benefit and to conform to one of 13 “Descriptions of Purposes” as listed in the Charities Act, and a Community Interest Company has to be established for Community Benefit. Though often an organisation might fit both legal definitions, this isn’t always the case.  Also different types of social enterprise are subject to different tax reliefs and liabilities, and rules on trading (for example there are more limitations on charities’ ability to trade compared to a limited company). An evaluation of the different kinds of legal structure can be found at  https://unltd.org.uk/wp-content/uploads/2012/11/table-3-7_table-3-7.png.

12 possible sources of loan finance or grant funding

  1. Big Lottery Fundgives over £630 million a year. It is still a very good place to look for money for your organisation, particularly in its early days. https://www.biglotteryfund.com/
  2. Crowdfunding – a platform to appeal to individuals for donations or loan finance http://startups.co.uk/crowdfunding
  3. ClearlySo helps social entrepreneurs raise capital and introduces investors to investment opportunities. https://www.clearlyso.com/
  4. A bank business loan, a high street bank or a specialist lender e.g. Triodos Bank https://www.triodos.co.uk/en/business/who-we-finance/charity-social-enterprises or Charity Bank http://charitybank.org.
  5. Co-operative and Community Financeprovides sympathetic loan finance to help people take control of their economic lives and create social benefit. http://www.coopfinance.co.uk/.
  6. Funding Central is a website that provides access to thousands of funding and finance opportunities and tools and resources supporting organisations. http://www.fundingcentral.org.uk/default.aspx.
  7. Finding Finance find finance from Community Development Finance Institutions (CDFIs). http://www.findingfinance.org.uk.
  8. GRANTfinder is the UK’s leading grants and policy database. There are around 400 trusts you can apply to for funding. Trusts vary widely in their character and remit so it’s worth making sure that you apply to one that aligns with your business. http://www.grantfinder.co.uk/
  9. The Social Investment Business, a social investor in the UK, helps social enterprises, charities and community organisations prosper by providing innovative financial solutions and business support. http://www.sibgroup.org.uk/.
  10. UnLtd is the Foundation for Social Entrepreneurs and provides support and grants (though the competition is tough) through their Awards Programme https://unltd.org.uk/path/.
  11. Social Enterprise East of England (SEEE) is an East Anglia regional organisation which provides a blog on latest local possibilities. http://www.seee.co.uk/funding/.
  12. Power to Change – finance and support for community enterprise. http://www.thepowertochange.org.uk.