Social enterprise

The sector has seen an increase in the scale and profile of social enterprise since the 1990s.  General charities now earn almost 50% of their total income. The income generated by social enterprise activity in the wider civil society is estimated to be between 2/3 and 3/4 of the £157 billion total income for civil society [1]. Earned income comes from both statutory sources such as government contracts, and from non-statutory sources including trading with individuals and with other organisations.  Both small and large voluntary organisations are earning income, with smaller community groups making particularly good use of different types of traded income. There is a growing expectation from both within the VCS and funders that organisations will engage in some form of income generation in order to become self-sustainable. Social enterprise is a subject increasingly present on the political agenda; at the heart of a “deep and serious” reform of public services it is a key part to David Cameron’s Big Society Agenda.

What are the implications?

  • Increased opportunities for the VCS as the Government’s reforms open up public services to more diverse sources and methods of delivery (see Public service delivery).
  • A blurring of boundaries between the VCS, public sector and private enterprise.
  • An increase and diversification of levels and sources of VCS income.
  • Funder expectation of income generation in every bid.
  • Greater independence for organisations who can secure more unrestricted income promoting financial sustainability.
  • Risks associated with entering competitive markets including mission drift or loss of resources.
  • The need to identify and develop new skills appropriate for a different way of working, for example marketing, sales, pricing and financial skills.  Also technical skills such as legal forms and structures and tax regulations.

Moving forward

Social enterprise and trading may include selling products or publications, providing training, renting office space to running a transport or membership scheme.

  • As income generation becomes more important to financial viability and securing grant funding, what would be most suitable for your organisation?

Developing some form of income generation will require some investment for staff training, new equipment and capital to finance the set up period. This can involve a significant amount of time and investment for your organisation depending on the type of activity.

  • Which training programmes would be able to help your staff develop new skills required to run a social enterprise?
  • How can you access the skills and experience of working in a competitive market?
  • How will you secure the organisational resources to drive it forward? It is important to plan, pilot and evaluate before launching on a big scale.

Organisations typically finance the start of trading through a combination of grants, loans (see loan finance), organisational reserves or social investment.

  • How can your organisation identify particular funders or funding streams that are interested in promoting sustainable funding?

Trading and enterprise can represent a culture change for some organisations due to different ways of working and potential ethical dilemmas.

  • How can you make sure any income generation schemes you set up have the involvement and buy-in of everyone in the organisation? Getting staff, trustees and volunteers involved as soon as possible is often an important step in doing this.

Rooted in the Big Society Agenda and catalysed by large cuts to public spending the Government is planning deep and serious reforms to how public services are delivered.

  • How can your organisation think about the potential future opportunities that may arise through Government reforms to public service delivery?
  • Are there steps you can take now to prepare your organisation’s readiness to respond to the changing funding environment and take advantage of these future opportunities?

Want to know more?

State of Social Enterprise Survey 2009

Published by: Social Enterprise Coalition – an infrastructure body for social enterprise

Date: 2009

Format: PDF (1.09MB)

What is it? A report by the UK’s national body for social enterprise looking at the findings of a large-scale survey into social enterprises within the UK.  It aims to shed light on the distinct and growing sector in regards to its size, structure, motivations, prospects, origins and future.

How useful is this? This report - using several case studies throughout - shows the increasing importance of social enterprise as part of the social and economic environment of the UK.  Whilst it is a very diverse sector, around half of the organisations surveyed had a background in the VCS.  The research looks at how the public sector is already a significant “customer” and examines that there is an intrinsic but not exclusive link between operations and local authorities.  It also looks in detail at the financial side of social enterprise, including how important funding is, how successful enterprises are in raising finance, how this finance is mainly spent on growth, as well as the barriers and enablers to growth.

Other comments: Other publications by the Social Enterprise Coalition can be found on their publication page here.

Social Enterprise

Published by: Third Sector Research Centre

Date: 2010

Format: Web and PDF

What is it? A large and extensive research project by the Third Sector Research Centre looking at the different characteristics of social enterprise, and its contribution to the third sector.

How useful is it? This is a vast and in depth resource that covers many angles and facets of social enterprise within the third sector.  Some of the research attempts to define social enterprise, examining how the concept and meaning has evolved and expanded over time. Other papers look at issues including the scale of social enterprise within the UK – its benefits, influence and success - as well as its geographic distribution, the increasing reliance of VCOs on changing income streams – particularly commercial activity – and how important social enterprise is within this changing relationship.  There is a wealth of recent and relevant social enterprise related information here that if properly explored can provide an excellent overview of the current state of the sector, and how things are likely to continue into the future.

 Other comments: The individual research streams can be selected in the left hand column, under “Social Enterprise”. If there is one available, the “Briefing papers” provide a much more accessible summary and overview of the core research and findings, than the full “Working papers” which while extremely detailed are quite academic in nature.

Spending review provides opportunities for third sector specialists

Published by: Social Enterprise magazine

Date: 2010

Format: Web

What is it? An article looking at how cuts and reforms to public spending and services could potentially provide opportunities for social enterprising activities within the social sector.

How useful is this? This brief article highlights particular opportunities that may arise within the social sector for third sector providers through Government reform.  Different business vehicles will represent the best option for different organisations, and the article touches on the importance for organisations to understand the full range of new Government initiatives and support.  It suggests that organisations consider the increasing importance of providing future evidence on impact from contracted services, as income will be reliant on it.

Other comments: A similar article by PWC suggests that “enterprising third sector organisations can work with forward-thinking public-bodies to design and deliver improved services more efficiently”.  While aimed particularly at the Scottish audience, the content remains relative across the UK.

References

  1. UK Civil Society Almanac 2010 [back]
Last updated at 14:50 Mon 07/Feb/11.

Recent comments

AuthorComment
David's picture

David

NCVO Research Team

The UK Civil Society Almanac – which has recently been published – might add some insight to this driver.

We looked at social enterprise activity in Civil Society, by looking at trading activity conducted by a wide range of organisations.

As well as social enterprises such as co-operatives, community interest companies, etc, we also included social enterprise activity conducted by charities and universities (amongst others).

This produced a total for social enterprise activity of £77 billion, over two-thirds of the total income of Civil Society.

More information on the Almanac can be found at www.ncvo-vol.org.uk/almanac including a free guide to how we produced the social enterprise activity figures.

Helen's picture

Helen

Guest specialist

There is still a huge expectation that social enterprise can deliver public services, but there are significant issues for small and medium sized charities in particular venturing into this area at quite fundamental levels, including the issue of charging for services, the cultural changes needed in the organisation and actually being able to make a profit. There’s also an interesting shift now to position social enterprises quite seperately to charities, making a clear business distinction where lines were previously blurred. I wonder what impact this will have on charities wanting to go the social enterprise route?

The conversations I have been having with other VCS groups & organisations considering social enterprise as an income diversification tool have been quite interesting.

Helen is quite right with her observation regarding the enterprise being a different entity to the parent. This is certainly what I’m seeing. Most charities don’t have the ability to trade within their Mem & Arts and need to establish a seperate entity (CICs being quite popular) mandating profits back to the parent.

I agree with Helen that this is going to require a paradigm shift in thinking in some organisations.

In response to the question posed at the end of her post; my experience of talking to a wide range of groups & orgs in Central London shows that while there is considerable interest from a wide range of organisations from small local groups to mid size orgs; start up rates are lower than one might expect. I think time required to start up with (if no funding is in place) no guarantees of a short term return on time invested is a considerable barrier.

Naked short selling in US is covered by a variety of SEC regulations, which prohibit the practice. Others believe that SEC regulations are poorly imposed. The new SEC chairperson, Mary Schapiro, along with Representatives Barney Frank and Gary Ackerman are all for uptick rule. This is a restriction on short selling in stock markets. It is prohibited for a stock broker to buy shares at a certain price, sell them for less, and then buy them back at a lower price and pocket the difference making a profit, which is essentially betting against Wall Street making any gains whatsoever. The idea is that it will put a stop to any incentives for a down market, and try to bring some investor confidence back. A lot of financial experts, economists, and investors are all for the return of the uptick rule.

Social enterprise has reached a rather cult-like status in some parts of Government and the Voluntary and Community Sector. It’s not hard to see why as it is a concept that tries to answer some of the big issues facing us in the future. How can social action find a sustainable financial model? What can replace Government grants, and shouldn’t we be asserting our independence by moving away from that anyway?

Many people have made intelligent points about the structural issues and opportunities presented by the drive towards social entrepreneurship. I’d like to pose a different set of questions about working culture and cultural attitudes to social action and the public good. These questions might seem esoteric at first but I think they have a real impact on our members’ behaviour, and relationship, to the social enterprise agenda.

The average Community Matters member is more financially independent than a typical social enterprise (as defined by the NCVO Almanac), who are far more reliant on direct or indirect public finance. And yet nowhere near as many of our members identify themselves as “social entrepreneurs”. Why might this be?

After several conversations about this matter with frontline workers the answer seems to lie in their desire to continue to be seen as a charity first and foremost. They resist going further down the road towards structuring themselves as a business because they don’t want to be perceived as such by the people they work with. For example, one member organisation has been looking at creating a ghost company. The idea would be to invoice the charity whenever it needs extraordinary external services or advice such as paying for legal services or HR support. At the moment it can’t fundraise for these things; Government and trusts, donors and foundations are only prepared to fund “frontline service delivery”, not the back office costs and management that enables them to run a professional organisation. In the end the trustees have rejected this as they felt it wasn’t transparent; however expected this kind of creative accountancy might be in other sectors, they felt it was compromising something integral to them as a charity.

So, to what extent has “social enterprise” become a way of sidestepping some of these very real issues about practice, accountability and what it means to do good in the world? Is there something innately patronising and dependent about charitable work? Or is that just about how we have come to see philanthropy in a culture that encourages us to think of ourselves as economic units entitled to a high degree independence from one another? Are we sceptical about the impact of charities, but reassured by the apparent “measurability” of business models?

And for me, the really burning issue; how can small community charities take the best of business practice without losing sight of their values and damaging the bonds of trust that voluntary groups rely on?

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How will this affect your organisation? Have you considered it during your strategic planning? Can you share any interesting relevant links?

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