Social enterprises are a hybrid between a traditional not-for-profit and a corporation with clear social, cultural, economic or environmental objectives that serve the wider community. Typically, a social enterprise is for profit, reinvesting any surplus into the business. Much like a business, you must be committed to your brand and employ the same strategies as high-growth startups and companies. Below, we explain how you can set up your social enterprise, choosing a legal structure and organising your internal governance.
Defining Your Social Enterprise
A social enterprise is not strictly a legal term but rather describes a business that solely exists for social purposes. When setting up, ask yourself:
- What is your offering? Every charitable venture or new business offers a solution to a problem. Ensure you clearly identify what problem you are trying to solve.
- Who will fund your social enterprise? At the end of the day, grant funding can assist your enterprise get off the ground, however doing good business will ultimately help your venture survive and scale.
- Who is your competition? Analyse the industry, who are your competitors? What have they done well or poorly?
- What is your business plan? It helps to clearly set out your venture’s vision, mission and goals to provide a framework to move forward.
- What is your marketing strategy? Leverage technology to tell your story through different platforms, communicate with your market and maintain transparency to build an emotional connection between the public and your brand.
Choosing a Business Model
The purpose of your social venture will determine how you run your business, for example:
- Employment Model – empowering marginalised people or a community to generate an income autonomously.
- Goods/Services Model – selling a product that is ethically manufactured, mitigating the social or environmental harm resulting from production.
- Social Investment Model – running your business and investing all profits into a charitable cause.
Choosing a Legal Structure
Social enterprises in Australia typically fall into two categories:
- Company limited by guarantee; or
- A non-trading cooperative.
Choosing a legal structure to support your socially conscious business is an integral step and will define what finance you can obtain. For example, a company limited by guarantee cannot raise equity by offering shares. You will then typically need to incorporate your business, apply for an ABN and register a business name. Ensure that you speak with an accountant to understand your tax obligations and what tax concessions are available.
To grow your enterprise, you will need some form of finance:
- Grants can assist in the early stages of your venture. If you are a grant recipient, you do not need to repay the money. However, they are often inflexible, for a particular purpose and can limit other ways to raise capital.
- Venture philanthropy is a grant which a philanthropist, who wants to have a hands-on role, gives to the organisation.
- Debt finance is usually available as a commercial loan and is more flexible than grants.
- Equity finance involves the exchange of finance or capital for part ownership.
- Quasi-equity is a form of debt that is treated as equity.
Once you have raised, don’t forget the basics:
- Maintain a reconciliation statement;
- Create a budget;
- Profit and loss account;
- Cash flow statement; and
- Balance Sheet.
You may want to share your decision making with a board of directors. When choosing a Board, consider their networks, skill set in finance, senior management, entrepreneurial skills, public relations and user experience.
Social enterprises present unique challenges, not only are you concerned with satisfying customers but also, solving a social problem and serving the environment or your community. Gandhi said to “be the change you wish to see in the world”. If you have any questions or need assistance getting started on your social enterprise journey, get in touch with our lawyers on 1300 544 755.
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