What is a Social Enterprise?
Social enterprises are innovative, independent businesses with a social and/or environmental purpose, working all round the UK and internationally. They trade for the common good rather than unlimited private gain, addressing social needs, strengthening communities, improving people’s life chances, enhancing culture or protecting the environment.
They aim to make profit like any other business, but invest 100% of it in their social purpose. Social enterprises in Scotland are “asset locked” (all property, money etc. can only be used for a social mission/impact). They’re a more ethical and sustainable way of doing business.
Many have traditionally been run as a charity that have been encouraged to be more enterprising to ensure sustainability, while others are small businesses with a social purpose. However, the term “social enterprise” shouldn’t be confused with private businesses that simply operate in an ethical way, charities that don’t do business (or trade very little) or public sector arms-length companies (ALEOs), though some of these may be on a journey as “emerging” social enterprises.
Social enterprises often provide inventive solutions to society’s problems and are relied upon to reach communities that others can’t. Social enterprises are slowly changing the face of how we do business throughout the world, providing a refreshing and empowering alternative.
Watch “Social Enterprise – an idea whose time has come” – a British Council video that explains why social enterprises are so important in helping to address the challenges we face in our communities and societies.
Local and National Examples:
The social enterprise sector is incredibly diverse, encompassing co-operatives and mutuals, development trusts, community enterprises, housing associations and social firms. Some well-known examples include: The Big Issue, The Wise Group, Divine Chocolate, the Eden Project in Cornwall, Jamie Oliver’s Restaurant chain Fifteen, Café Direct, The Grameen Foundation and Mondragon Corporation.
The recent Census recorded 190 social enterprises in Dumfries and Galloway, some examples are: Dumfries and Galloway Citizen’s Advice Bureau, Creetown Initiative Ltd., Loch Arthur Camphill Community, The Usual Place, Loreburn Housing Association, Dumfries and Galloway Chamber of Commerce, Solway Credit Union and the Community Transport Initiatives. Click here for case studies on local and national social enterprises please.
Social Enterprise in Scotland – National Statistics
Scotland has a long history of pioneering new forms of business. The co-operative, mutual and social enterprise models reflect a belief in a fairer more equal society where business activity is used as a means to this end. Scotland’s first Social Enterprise census, commissioned by a range of public and social enterprise organisations*, takes stock of this maturing social enterprise sector and its contribution.
The Census reveals the significant size and impact of Scotland’s social enterprise businesses for the very first time and confirms Scotland as a world-leading nation in nurturing social enterprise.
- Over 5,000 social enterprises in Scotland
- Over 200 new social enterprises formed each year
- Highlands and Islands has 22% of all social enterprises
- Edinburgh and Glasgow account for 26% of all social enterprises
- 60% of social enterprises have a woman as their most senior employee
- 68% of social enterprises pay at least the recognised Living Wage
- Provides over 112,400 jobs
- £1.15bn in combined traded income
- Net collective assets £3.86bn
- Gross Value Added (GVA) figure is approx. £1.7bn
The full report can be found here.
The Census Key messages can be found here.
*The Social Enterprise Census 2015 was funded by: Big Lottery Fund, Co-operative Development Scotland, Highlands and Islands Enterprise, Nesta, Social Investment Scotland, Scottish Enterprise and The Scottish Government. The report was researched and produced by the Social Value Lab.
Setting Up a Social Enterprise?
Does your organisation have the Key Characteristics of a Social Enterprise?
There are a number of common criteria which distinguish social enterprise from other businesses. These criteria are defined through a Voluntary Code of Practice. (http://www.se-code.net/ ) developed in 2013 by a group of leading social enterprise stakeholders in Scotland, that is:
- Social enterprises have a social or environmental impact in the local community.
- They take an enterprising approach and minimise grant dependency by generating income through trading.
- Their surpluses are re-invested to improve and increase their activities.
- Ownership of their assets (e.g. buildings, land and resources) are locked and would be returned to the community should the organisation dissolve.
- They are distinct from the public sector (government) and are not a subsidiary of a public body.
- They are a good employer, promoting fairness and not paying executives excessively.
Further information on these points can be found below:
For those looking to enter the world of social enterprise, make sure your enterprise is a viable business in its own right. Be clear on your social mission and how your business will achieve it. Ensure you can demonstrate the social impact you are seeking to have.
Our team at Third Sector Dumfries and Galloway can help you develop a plan and signpost you to relevant organisations for further support and funding opportunities – see Support for Social Enterprises.
Is your organisation currently a social enterprise?
The following graph (SE graph developed by EKOS – http://www.senscot.net/docs/EKOSStudy.pdf ) provides a check-list for any organisation to see if they are in principle a social enterprise (without specifying the extent of income that needs to be generated from trading – thereby allowing for aspiring social enterprises to be considered).
What is meant by Social Impact?
Social impact/purpose can be:
- Improving health and wellbeing
- Providing a place where people can meet
- Regeneration of neighbourhoods
- Promoting a sense of belonging
- Helping people to build confidence
- Supporting people to live independently
- Encouraging learning and education
- Creating employment Opportunities
Why Social Enterprise?
Social enterprises suit those who want to make their organisation more sustainable and wish to adopt an entrepreneurial approach to achieving social or environmental change. The model is appropriate where personal profit is not the business objective.
They are often set up by existing organisations or charities who wish to fund their work through trading (rather than simply donations) or set up by a business with social aims that does not want to restrict its activities under charity law. (Karina MacRitchie from Senscot Legal outlines the issues charities must think about when becoming a social enterprise).
As a social enterprise, the business can still clearly communicate its social purposes and assure clients, customers and supporters regarding how profits and assets are applied. However, depending on the legal structure chosen, you can have greater freedoms regarding payments to company directors, a wider range of acceptable purposes and (limited) options regarding payments of dividends.
What are the benefits of being a social enterprise in Scotland?
- Less dependent on fundraising and grants
- More financially independent which can lead to greater flexibility
- Seen as a positive model both by Scottish and UK Governments
- More attractive to funders who are keen to support more sustainable projects
Types of Social Enterprise?
Social enterprise is a diverse community and the more-than-profit approach is used by a huge range of organisations, of every size, operating in every corner of Scotland and in most sectors of the economy.
- Co-operatives and Mutuals
- Credit Unions
- Housing Associations
- Social Firms
- Community Interest Companies
- Development Trusts (Further information on these types of organisations can be found below.)
As a result social enterprises use a wide variety of legal forms. (See Legal Structures)
If you are thinking of setting up a social enterprise, come and speak to our team who will be happy to help you.
Co-operatives and Mutuals
Co-operatives and Mutuals are democratically-owned businesses which give employees, customers or members a direct stake in the business. There are now almost 600 co-ops in Scotland, with a turnover of more than £4bn a year and employing 28,600 people. Co-operatives UK.
Credit Unions are a distinct type of co-operative that provide financial services to members. Many operate in areas of social and financial exclusion, but more employers are now offering credit union membership and the largest offer a competitive range of mainstream financial products. There are over 100 credit unions operating across Scotland with over 280,000 members and assets of over £300m. Association of British Credit Unions Ltd (ABCUL Scotland) and the Scottish League of Credit Unions.
Housing Associations (aka Registered Social Landlords or RSLs)
Housing Associations and housing co-operatives are voluntarily-managed companies providing affordable housing for rent and for sale. They give priority to those in greatest need and reinvest any surplus income in maintaining or adding to their housing stock. Many Housing Associations also support other forms of social enterprise through ‘Wider Role’ community regeneration activity. There are 161 housing associations and co-operatives in Scotland providing more than 277,000 homes and over 5,000 places in supported accommodation. Scottish Federation of Housing Associations.
Social Firms are commercial businesses that provide integrated employment for people with disabilities or other disadvantages in the work place. There are currently 78 members of Social Firms Scotland.
Community Interest Companies
CICs are limited companies created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. There are now over 400 CICs in Scotland. CIC Regulator.
Development Trusts are community run organisations that are concerned with the economic, social, environmental and cultural needs of their community. They are owned and managed by the local community and aim to generate income through trading activity that enables them to deliver services. There are currently 206 members of Development Trusts Association Scotland.
Legally, there is no such thing as a ‘social enterprise’ – that’s the umbrella term that covers a wide range of organisations – in addition to Community Interest Companies, these also include standard companies limited by guarantee (with and without charitable status), Scottish Charitable Incorporated Organisations and those labelled as an Industrial and Provident Society (IPS). There are two types, a Community Benefit Society and a Co-operative Society.
- Company Limited by Guarantee* (CLG)
- SCIO (Scottish Charitable Incorporated Organisations)
- Community Interest Company (CIC)
- Co-operative Society
- Community Benefit Society* (BenCom)
*These can be with or without charitable status
Deciding on where the money is coming from will indicate which particular legal structure is appropriate for your business, as well as what you are going to do with any profit, whether you want to take advantage of tax breaks and how much control you want to retain over your social business.
The ability to trade without restrictions is very different whether you go along the charitable or non-charitable route. The ability to distribute profits through dividends is also different, depending on your legal structure.
If you are relying on grant funding, the charitable organisation structures will often open a lot more doors. However, if your income is primarily going to come from trading and you have an underlying social purpose, that would probably indicate a community interest company (CIC) as a more appropriate option as this would enable you to act like any other company more or less, paying directors expenses and a remuneration.
Each structure brings its own benefits, restrictions and reporting requirements which will determine which is most appropriate for your business. Click here to find out more about each option and which is more appropriate for your organisation.
To read more on CIC’s and IPS read “What legal form should your social enterprise be?” a blog by Myles Cooper’s, a non-practicing solicitor and specialist advisor at Inspire2Enterprise: (Senscot )
Practical business support:
Third Sector Dumfries and Galloway can help with the initial development of your social enterprise. We can then signpost to other organisations for further support. Just Enterprise – provide free, specialist business support, development and learning service for social enterprise. It includes starting up a social enterprise, funding, training and procurement. Just Enterprise is a consortium of 10 specialist sector organisations, with a wealth of experience in launching and developing social enterprises across Scotland. You can also access the Startbright resource for practical start-up advice and support. Dumfries and Galloway’s Business Gateway Office can offer all general business support.
(The Just Enterprise consortium is: CEIS, HISEZ, Firstport, Social Enterprise Academy, Forth Sector Development, Community Enterprise Ltd, CEMVO Scotland, Lanarkshire Enterprise Services Ltd, Ready for Business & Inspiralba).
Social investment & funding:
Members of Third Sector Dumfries and Galloway can sign up to our regular funding ebulletin and can see regular features on our website blog. We can also run funding searches for you, please get in touch with our head office to find out more information on 0300 303 8558. See The Big Lottery funding information. Social Investment Scotland (SIS) is a registered Charity, Community Development Financial Institution and social enterprise which provides business loans to Third Sector organisations. Other sources of social investment are available from e.g. banks, other Community Development Finance Institutions (CDFIs), local authorities and funding bodies. Speak to us about Community Shares and see Community Shares Scotland – an innovative new way to fund community enterprises.
Measuring your impact:
We can help you develop your Social Return on Investment evaluation for your organisation. Contact firstname.lastname@example.org for more information. Evaluation Support Scotland (ESS) also works with voluntary organisations and funders so that they can measure and report on their impact. The Social Audit Network (SAN) facilitates the exchange of information and experience between practitioners of social accounting and audit in the social economy. The contact email for SAN in Scotland is: email@example.com. Also see the SROI Network in Scotland.
Social enterprise venues:
Scotland’s best social enterprise venues listed in one easy-to-search directory.
For affordable legal advice for social enterprises go to Senscot Legal.
Marketing, media, promotion and PR:
Take a look at social enterprises in action on Social Enterprise Scotland TV (launched and developed by Social Enterprise Scotland). Email them to upload and promote your own short films or to discuss other promotional, media or marketing opportunities for your social enterprise. See The Guardian – Sustainable Business and Pioneers Post for social enterprise news stories.
Social Enterprise Networks (SENs) and networking forums:
Themed SENs are organised by Senscot and include a Health SEN, Community Food SEN, Employability SEN, Cultural SEN and Sport SEN. Click here to access to them. Dumfries and Galloway also has a local SEN . Join the Social Enterprise Scotland Linkedin group Scotland’s Social Enterprise Community to discuss any and all issues related to social enterprise in Scotland.
For help taking over land or building assets for community benefit, contact Third Sector Dumfries and Galloway and The Community Ownership Support Service (COSS). This service also helps local authorities and others with advice on transferring assets to community groups.
For Co-operative business support and development you can access Co-operative Development Scotland (a public agency that is part of Scottish Enterprise). Also get information from Co-operatives UK.
Other business support:
The Scottish Business Portal brings together all business support for the private sector and is also open to social enterprises. Resources are available via the Portal from The Scottish Government, Business Gateway, Scottish Enterprise / Scottish Development International, Highlands and Islands Enterprise (they also have a specific remit for social enterprise), Skills Development Scotland, Bright Idea Scotland and GOV.UK.
Education and social enterprise:
Social Enterprise Academy, Yunus Centre for Social Business and Health (Glasgow Caledonian University), Interface (The “knowledge connection” between business and academia), Scottish Institute for Enterprise (Developing student entrepreneurship and social enterprise), Young Enterprise Scotland (Supporting those aged 5-25), The Hunter Centre for Entrepreneurship (University of Strathclyde), The Business School (Edinburgh Napier University).
Useful web links
Social Enterprise Scotland (The national membership, support, policy and campaigning body for all social enterprises in Scotland)
Social Firms Scotland (support body for the development & promotion of Social Firms – businesses that provide integrated employment for people with disabilities or other disadvantages)
Senscot (for local and themed Social Enterprise Networks – SENs)
Development Trusts Association Scotland (local community-led regeneration organisations)
School for Social Entrepreneurs (Scotland) (supporting social entrepreneurs with personal and organisational development)
Social Enterprise UK (equivalent to Social Enterprise Scotland)
Co-operatives UK (to promote, develop and unite co-operatives)
CIC Regulator (UK regulator for all CICs)
Financial Conduct Authority (Regulating the conduct of over 70,000 businesses)
Association of British Credit Unions Ltd (ABCUL Scotland – trade association for credit unions)
Scottish League of Credit Unions (supporting small to medium sized Credit Unions)
Scottish Federation of Housing Associations (To lead, represent and support Scotland’s housing associations & co-operatives)
Third Sector Organisations
Voluntary Action Scotland (VAS) (for local Third Sector Interfaces – TSIs)
Third Sector Internships Scotland
Third Sector Employability Forum (TSEF)