Focus on: Social enterprises

Background

According to Social Enterprise UK, the main umbrella body for social enterprises in the UK, social enterprises are businesses that meet the following criteria:

  • Has a clear social or environmental mission that is set out in its governing documents
  • Is an independent business and earns more than half of its income through trading (or are working towards this)
  • Is controlled or owned in the interests of a social mission
  • Reinvests or gives away at least half its profits or surpluses towards a social purpose
  • Is transparent about how it operates and the impact that it has

Social enterprises are difficult to define because there is no single legal model, meaning that social enterprises are often self-defined by organisations rather than defined through their legal forms.

According to Gov.UK, social enterprises can be set up as a:

  • Limited Company by Guarantee (CLG) or by Shares (CLS)
  • Charity, or from 2013, a Charitable Incorporated Organisation (CIO)
  • Co-operative (which can operate under a variety of legal forms)
  • Community Interest Company (CIC)
  • Sole trader or business partnership

Social enterprises can register under a variety of legal forms

Recent research from Social Enterprise UK shows the wide variety of legal forms used by social enterprises, with Company Limited by Guarantee (CLG) being the most common form used. This further highlights the difficulties of measuring the scope of social enterprises.

While CLG's were the most common legal form in 2019 (28%), this has been decreasing from 2011 which saw over half (54%) of social enterprises registered as CLG's. With the introduction of Community Interest Companies (CIC) in 2005, the number of social enterprises registering as a CIC has increased, from 10% in 2011 to 23% in 2019 (including CIC CLG, CIC CLS and CIC unsure categories)[1]. This is in line with official figures from the CIC regulator, with total numbers standing at over 15,000 in 2018/19.

Similarly, when social enterprises were asked what best describes their organisation, a diverse list of terms came up. Only a third described themselves as a social enterprise[2], followed by 31% of organisations that used ‘community business’ and 26% ‘co-operative’. However, there has been a significant decrease of those that described themselves as registered charities, from 37% in 2009 to 11% in 2019.

Size and scope

The sector shows signs of growth

According to Social Enterprise UK, there are approximately 100,000 social enterprises in the UK[3]. As reported in their publication State of Social Enterprise Survey 2019, around one third (30%) were ‘new’ organisations established in the last three years (compared to 25% in 2017). A third (34%) have been trading for six to 20 years and a quarter (24%) of social enterprises had been trading for 21 or more years (similar to previous years). The increasing number of younger social enterprises could indicate that this sector is growing. It could also indicate that setting up a social enterprise has become easier with the introduction of Community Interest Companies. Additionally, just over half (52%) of organisations reported an increase in annual turnover (compared to 47% in 2017). However, because of an increase in newer start-ups, the proportion of organisation size remains largely unchanged over the years.

Social enterprises are more likely to be small; a third had an income under £50,000 and another third had an income between £50,000 and £100,000. This is broadly in line with the make-up of general charities in the UK; according to the Almanac, 81% have an income of less than £100,000.

Almost all (95%) of the social enterprises surveyed had taken specific actions to grown or diversify their organisation. For instance, two-thirds (62%) were planning to innovate and develop new products or services and over half (56%) had already developed new services or products. The majority of social enterprises (66%) were planning to increase their marketing or advertising to grow their organisation, and 57% were planning to recruit new staff or increase the level of training.

A third of social enterprises operate locally and in a variety of sectors

According to Social Enterprise UK, a third (34%) of social enterprises operate at a local level, with 21% operating in their neighbourhood, and 13% operating within their local authority. The second most common area of operation was working in several localities (29%) with 14% operating within their region, followed by operating nationally (23%) and internationally (14%). Social enterprises are also more likely to work in the most deprived areas (22%) than in the least deprived areas (13%). Social enterprises operate in a variety of different sectors, including hospitality (10%), retail (9%), community services (4%). Education and skills development was the most common sector, making up 13% of all social enterprises.

Financials

Earned income from the public is the biggest income source for social enterprises

According to Social Enterprise UK, in 2018, social enterprises were worth an estimated £60bn to the UK economy which represents about 3% of UK GDP[4].

When looking at organisations’ main or only source of income, earned income generated through trading with the general public comes up top with a quarter (26%) of organisations generating money in this way. Other types of trading such as trading with the public sector (19%) and trading with the private sector (16%) were also common.

Workforce

The social enterprise workforce is estimated at 2m people

According to Social Enterprise UK, there were an estimated 2m people working in the social enterprise sector in 2018, around 5% of the total UK workforce[5]. This is an increase from an estimated 1.4m employees in 2017 as reported in Social Enterprise: Market Trends. Research from Social Enterprise UK suggests that for 42% of social enterprises, over half of their employees were women and for 13%, women made up the entire workforce.

Spotlight: Diversity and BAME leadership in social enterprises

Research from Social Enterprise UK suggests that social enterprises are diverse and inclusive, particularly in their leadership teams. The majority (86%) of social enterprises have women in their leadership team, and 35% report having at least one Black, Asian or Minority Ethnic (BAME) director. Additionally, over a third (37%) of social enterprises have a disabled person in their leadership team. However, when it comes to age, people in the leadership team were more likely to be older, with the majority (78%) of social enterprise leadership teams made up of those aged 45-64.

In terms of CEO's and organisation leaders, Social Enterprise UK reports that social enterprises are more likely to have female or BAME leaders[6] than other sectors. In 2019, four in 10 social enterprises were led by women (lower than the proportion of women in the UK population), and 13% were led by someone from the BAME community (broadly reflective of the UK population). According to Social Enterprise UK, the proportion of female and BAME leaders are much higher than other sectors reported, such as Small and Medium-sized Enterprises (SMEs), FTSE 100 companies and the charity sector. However, the ACEVO Pay and Equalities Survey 2019 highlights that female leaders made up 63% of the charity sector in 2018, an increase from 57% in 2017. This shows that while social enterprises have higher proportions of BAME leaders than charities, charities are more likely to have a female CEO than social enterprises. While the number of female CEO's in charities has increased, the data from ACEVO indicates that this is broadly limited to white, non-disabled women.

In Northern Ireland, 43% of social enterprises were led by women, broadly in line with the UK average. Scotland and Wales, however, engage more women in leadership positions than the rest of the UK. Almost all (92%) of social enterprises in Wales included at least one woman in their leadership team (compared to 86% in the UK), and two-thirds (65%) of Scottish social enterprises were led by a woman (compared to 40% in the UK).

Reflections

Does the growth in social enterprises indicate a changing voluntary sector?

More organisations seem to be describing themselves as a ‘social enterprise’ or ‘community business’. At the same time, the number of CIC's has increased. Does this indicate a move away from the traditional notion of ‘charity’ and illustrate the increasing blurred boundaries between charity and business? As mentioned before, there is no legal form or shared definition of what a social enterprise is, making it difficult to measure the true size and scope of the social enterprise sector. In addition, many charities generate earned income through trading like social enterprises do. So, using a narrow definition for social enterprises that links them to a particular type of organisation could underestimate the importance of social enterprise as an activity within civil society as a whole.

There are many reasons why social enterprises seem to be gaining in popularity. One could be around widening definitions of ‘social enterprises’ with more organisations fitting the term. Another reason could be around regulation and barriers, with some legal forms (such as CIC's) benefiting from an easier financial reporting process than registered charities. The growth in organisations registered as CIC's could indicate that organisations with a charitable purpose prefer moderate regulations with fewer administrative burdens over the benefits of registering as a charity such as tax reliefs.

A further reason for shifting from a charitable to a business model is the perception that social enterprises might be more sustainable.Research by NPC suggests that social enterprises tend to be more financially sustainable than charities, however being a social enterprise in itself doesn’t ensure financial security and more recently, the covid-19 pandemic has also shown how much earned income from trading can be negatively affected by external events.

Footnotes

  1. From 2017, the Community Interest Company category use by Social Enterprise UK surveys was expanded to include ‘Community Interest Company (CIC) CLG’, ‘CIC CLS’ and ‘CIC (unsure of which)’. Before 2017 a broader ‘Community Interest Company (CIC) category was used.

  2. For the purposes of the survey, all respondents were considered to be social enterprises regardless as to whether they saw themselves as one at this question

  3. This figure is based on broad estimates from a number of sources, including Co-operative UK and the Building Society Association, to help identify relevant organisations.

  4. This figure is based on broad estimates from a number of sources, including Co-operative UK and the Building Society Association, to estimate the number of social enterprises, and average income is based on survey data.

  5. This figure is based on broad estimates from a number of sources, including Co-operative UK and the Building Society Association, to help identify relevant organisations.

  6. Leaders are defined as the owner, chief executive, managing director or equivalent.