Specialist in Small Charities, Not for Profit, Businesses and Startups.

SOCIAL ENTERPRISES

Social enterprises are businesses that are changing the world for the better. Like traditional businesses, they aim to make a profit but it’s what they do with their profits that sets them apart – reinvesting or donating them to create positive social change.

Social enterprises are defined as businesses that:

  • Your business has a clear social or environmental mission that is set out in its governing documents;

  • You are an independent business and earn more than half of your income through trading (or are working towards this);

  • You are controlled or owned in the interests of your social mission;

  • You reinvest or give away at least half your profits or surpluses towards your social purpose;

  • You are transparent about how you operate and the impact that you have.

3 Business Models

CAF divide social enterprises into 3 distinct business models, based on their research defining enterprises according to the social impact they are achieving rather than their legal form.

 

Model 1 – Profit Generator:

Trading activity itself is primarily seeking a financial return only. As such, it is deemed to have no direct social impact but gives some or all of its profits to charity. Financial risk of the investment is disconnected from the likelihood of achieving social impact.

 

Model 2 – Trade Off:

Social impact is integral to the nature of the trading activity, but a balance has to be struck between generating financial returns and creating social impact. The firm could increase its social impact by decreasing financial returns, or vice versa. In other words, there is a trade-off. 

 

Model 3 - Lock Step:

Trading activity has direct social impact, but that social impact increases or decreases in step with financial returns. Apparently these types of enterprise are scarce as they operate in clearly competitive markets. 

What is the difference between a charity and a social enterprise?

Similarities

Whether it’s a charity or a social enterprise, the main goal is to complete a social mission, and to make a positive difference to the world. Both charities and social enterprises tend to reinvest their profits into good things that benefit a part of society, or society as a whole. For both types of organisation, sustainability is paramount. In order to continue doing good, the business must operate efficiently and effectively.

 

Differences

Whilst charities often fund their good work through donations and fundraising, social enterprises often sell products or services, in order to reinvest their profits.

Checklist for Starting A Social Enterprise

Before setting up a social enterprise, you might want to ask yourself the following questions to see if you are ready and whether a social enterprise is right for you:

 

  • Have you considered what legal form your social enterprise is going to take? Options include unincorporated associations, trusts, limited companies, industrial and provident societies, Community Interest Companies, and charitable incorporated organisations. 

 

  • Have you explored all the start-up support options available to you and your social enterprise? 

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  • Are you completely committed to the social and/or environmental aims of the company?

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  • Have you considered other key regulations that might affect your business - eg if working with vulnerable people, children, and the elderly? GOV.UK has a Licence Finder tool which you can use to find out if you need a licence for your business activities.

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  • Have you thought about how you will finance the social enterprise, both at start-up and during periods of growth? If you are using your own money, will you be able to survive while the business finds its feet? 

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  • Do you have a viable business idea - ie is there a market for your service or product? 

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  • Have you considered how you will research your customers, or engage with your stakeholders? 

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  • Will you require the services of professionals such as an accountant or solicitor? 

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  • Will you need to employ staff in your social enterprise and do you fulfill the requirements of becoming an employer? 

Video Explanations of Processes & Terms

Difference between Charity & Business Accounts

Deferred Income

Restricted & Unrestricted Funds

Charities & Companies follow different legislation and hence have different formats and note requirements.

When a Charity is also a Limited Company it is required to do a combination of the formattings in its statutory accounts.

 

 

Deferred income is used often in Charity Accounting in order to ensure that only the element of the income received that relates to the actual months within the Financial year are accounted for in the Financial Statements.

The money is deferred (removed from the profit & loss) and put into the balance sheet as a current liability (debt) which will be released back into the profit & loss within the next 12 months.

The video explains the situations when this happens.

In Charity Accounts there are 4 types of fund that can appear on a set of Financial Statements:

 

  • Restricted, where the funder has specified the money be spent on specific expenses or activity;

  • Endowment, where the money is to be spent on a long term asset such as a building, and the Endowment is released into the P&L account at the same rate as the depreciation on the asset;

  • Designated, Funds that were originally unrestricted but the Board have voted for it to be shown on the Financial Statements as designated, put aside, for a project they wish to fund in the future. This can be undone by the Board at any time and the money fall back into the Unrestricted pot.

  • Unrestricted, anything that can be used against any type of the businesses expenditure.