Social Enterprise is Changing too Fast to Define

We’re often asked what the Social Enterprise sector is, which is a tough question because it is not really a sector at all.  The key problem is definition.  Social enterprise is frequently defined in terms of activity rather than organisational form, and that activity is expressed in business language: making money from goods or services to further a social, community or environmental aim.

Depending on their sensibilities, some people emphasise competition and profit in their definition, and even allow for the possibility of a private financial interest.  As to whether it should stretch to include grant or philanthropically funded bodies “trading on the side”, or privately owned businesses “putting something back”, the debate is adding more to global warming than anything else.

However, once you set aside the angst over status and definition, social enterprise reveals itself, not as a new approach to achieving social progress or environmental salvation, but a rebranding of some of the oldest and best means to those ends.

Before the welfare state brought us the NHS and universal free education, such social goods were provided by a mix of philanthropy, religious outreach and, significantly, fee-charging organisations.  Early champions of broadening economic access and creating better markets founded the co-operative movement and mutual financial institutions, while individual communities raised funds from road and bridge tolls to build locally necessary works like flood defences.

Social enterprise today encompasses charities trading with individuals and the state; the income generating trading companies of charities; community interest companies; cooperatives, and industrial and provident societies among others.  They are proper businesses with “asset locks” binding them to their social aims, or spin-offs from the public sector newly empowered to manage their own affairs and run contracts commissioned by the state.

Buzzacott has worked with many of these organisations for a long time – care homes and hospitals, many established by religious orders and congregations, or leisure trusts like Aquaterra, operator of public leisure centres in Islington and Bath – but is also building up its portfolio of more recently developed businesses.

Avnish Savjani’s long-standing client, HCT Group, has changed out of all recognition from its origins as an estate-based transport provider in Hackney, existing on a few hundred thousand in grants.  Now it is a £30-million business operating a blend of community and mainstream public transport services as far afield as Yorkshire and the Channel Islands.  The group is backed by financiers who watch both their financial and social return on investments, and has won many awards in both the transport and social enterprise space.

More recently won clients include Third Sector Consortia (3SC), a limited liability partnership whose constituents are a mix of privately owned consultancy, state funded social financier and a variety of charities.  3SC aims to win large public sector contracts on behalf of a network of social sector organisations.  It manages the relationship with the commissioning body and the processes to channel funds to its supply chain while ensuring delivery of the planned outcomes.

In working with this client group, the team has had to deal with many issues not seen in our mainly charity focused client base, among them, the tax implications for charities of membership of an LLP; the VAT status of a variety of grants and contracts with public sector bodies; and measuring the contribution to profit of contracts structured for payment by results – results which often lag service delivery by months, even years.  The team has also leveraged their significant start-up experience with City Academies to help new enterprises with keynote services like financial modelling, systems implementation and regulatory registrations.

As the funding environment for charities continues to shift, notably through a trend towards the “personalisation” of state spending on social care, charities are increasingly having to behave like businesses.  There will always be a need for philanthropic, religious and volunteer-based charity, but those charities that provide services are moving towards a culture of contracts, not grants, drawing on targeted budgets to support clients instead of relying on block funding by the state.

Social enterprise is more often defined by what it is not – casino capitalist, paternalistic charity – than what it is.  Increasingly, though, it sees itself simply as a better way of doing business, and engaging with it on that basis has brought valuable experience to our team and built new skills to support an expanding client base.

For further information on the topics covered in this article please contact Edward Finch.