It’s a question we often get asked, and it’s never an easy answer.
That’s not because we don’t know, but because depending on where you are there are normally different ideas of what exactly constitutes a social enterprise.
Let’s start with some generalisations to get the ball rolling anyway:
- A social enterprise must be transparent and open. Social entrepreneurs effectively put the way they act into their organisations – or they should do.
- A social enterprise should have a triple bottom line. This involves having social, environmental and financial goals and making sure they’re all taken into consideration when making business decisions.
- A social enterprise should make some money through trading on the open market. If all your money comes from government grants or contracts, then you may not be a social enterprise – more of an charity or NGO.
- A social enterprise has to reinvest a proportion of its profits into its social/environmental goal. This doesn’t mean reinvesting it into the business and buying yourself an Aston Martin Vanquish though.
Whoever we speak to in the social entrepreneurship sphere, they always provide us with those four themes. If we take a closer look at some areas, you will see how the definition varies from person to person, organisation to organisation and country to country.
- In some countries, social enterprises must publicly report on their social and environmental impact, as well as their financial accounts. They must engage all stakeholders in decision making and have open membership.
- In certain countries, you must explicitly state what each of your goals are (for people, planet and profit) when setting up, in others you have to have one main goal, be it environmental or social, and not be too clear elsewhere.
- We have seen that the percentage of money coming from trading changes from country to country. Some stating a minimum of 25% gives you social enterprise status, others 50%. There’s normally special dispensation for start-ups or NGOs converting over though.
- This has the biggest range. In Croatia, their strategy states 75% of profits should be reinvested, in the UK CiC’s (social enterprise legal form) is 65%, and the scale goes all the way down to not stating how much of your profits should be reinvested.
Furthermore, and outside the general rules, some countries state you must employ people from vulnerable groups to qualify and others state the government can never be the owner of a social enterprise.
Now you have a bit more insight into the complexities we sometimes face in explaining, but there are a few organisations trying to make things more precise and clearer, which we will discuss next time.