Should charities ride the social enterprise wave?

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Pic: The Wave Project is a charity that transforms the lives of young people through surfing.

Kate Wyatt, partner with RSB Lindsays, says both charities and social enterprises have much to learn from each other, but the ride may not always be smooth

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24th January 2017 by TFN Guest 0 Comments

Social enterprises are an amazing success story for Scotland, as TFN has often highlighted. The number are growing by over 200 a year, and their activities range from running community halls to making gin to providing social care.

In 2016 and 2017, their profile is rising even higher, with the Scottish Government launching its long-term strategy for growing the sector over 2016-26, announcing its bid to host the Social Enterprise World Forum in 2018, and launching an action plan for helping social enterprises to internationalise. The plans include supporting social enterprises with ministerial visits and helping them access specialist business advice from Scottish Enterprise, Business Gateway, and Highlands & Islands Enterprise. Specialist advice and assistance is also available from third sector interface organisations such as Dundee’s organised and effective Social Enterprise Network, DSEN.

With social enterprises currently enjoying so much love from government, media and customers, it makes sense for charities of any size to consider whether the social enterprise boom could enhance their own activities and access to finance.

The word ‘consider’ is important here: charities and social enterprises overlap in their aims and activities, and have much to learn from each other, but they are also very different entities, and may sometimes be better to stay that way. Any attempt to ride the social enterprise wave is a major decision and should be made with caution.

Charities that want to do so have a range of options. First is to operate along the same lines as social enterprises, with a shift to raising more finance through trading and using a more commercial approach to marketing. This can open up new funding sources, as well as create opportunities for profile-raising.  

Kate Wyatt

Kate Wyatt

Another option is to collaborate with other organisations to set up a social enterprise, or to work with an existing social enterprise. And a third option is simply for charities to learn from social enterprises, looking at the sector to gain fresh ideas on mindset, marketing and revenue streams.

It’s also possible for the learning to go the other way, and for social enterprises to become charities. Around 3500 of Scotland’s 5000+ social enterprises are registered as charities, and therefore have to pass the charity test and meet OSCR’s reporting requirements. While this raises their compliance workload and may restrict their possible activities, it is also a means to build transparency, public trust and recognition, which itself can help with raising finance. There are also tax benefits to taking the charity route.

For both social enterprises and charities, the decisions are not straightforward. There are plenty of legal formalities to consider, in particular:

  • The range of work they want to carry out (including political activities or types of trading)
  • Payment of directors and trustees
  • Whether the benefits provided by the organisation are public or private, and whether any private benefits for an individual or a group of people are intended or incidental
  • The consequences in terms of current revenue sources.

OSCR has good general guidance for social enterprises contemplating becoming a charity, although the circumstances and decisions for each individual organisation will be unique.

Every organisation must also examine non-legal aspects as well, since the gap between charities and social enterprises is often cultural, around having a compliance mindset or a commercial mindset. In this respect, both have much to learn from each other, but friction can easily occur – either internally when a social enterprise is considering whether to become a charity (or vice versa), or between organisations when social enterprises and charities join forces.

As ever, quick decisions can lead to problems, whether through a headlong rush to take advantage of the social enterprise boom, or through an overly-quick dash back to safety at the first sign of friction or requirements to operate in unfamiliar ways. Far better is a slower exploration of the opportunities and issues at stake, and also of possible partners. Be measured, be open-minded, and take advice.

Kate Wyatt is employment partner at RSB Lindsays.