The business of delivering social impact

Many small organisations working to deliver social impact are choosing to operate as businesses rather than as charities

Ailbhe McNabola

Head of Research and Policy

That many small organisations working to deliver social impact are choosing to operate as businesses rather than as charities is one of the conclusions of a new report from Social Enterprise UK and the Lloyd’s Bank Foundation, which shines a light on the smaller end of the social enterprise market. The analysis finds that 41% of these businesses are focused on serving a specific local community, and that a greater proportion of small and medium-sized social enterprises are choosing legal structures and identifiers which class them clearly as businesses operating in and for a community, rather than as a registered charity.

Survey highlights: almost 35% of small social enterprises (turnover <£1m) self-identify as community businesses, and 41% of small and medium-sized social enterprises are focused on a particular community.

Smaller social enterprises are faring better than their larger counterparts in some important areas – such as diversity, their ability to sustain themselves through trading, and their focus on deprivation – but are less profitable and not often delivering public contracts. Interesting lessons here for organisations, like Power to Change, that want to support and grow this end of the market. And there’s plenty to be encouraged by. The research highlights the neighbourhood-level impact these organisations can deliver: Over two-thirds of smaller social enterprises support individuals from disadvantaged backgrounds, and almost half seek to employ people from those groups. Supporting these smaller enterprises, who are much more likely to be operating at a neighbourhood level, can be a route to supporting the people who need it most.

The Trading for Good report contains an analysis of data from SEUK’s 2017 State of the Sector survey, looking only at those with a turnover of less than £1 million. Some headline numbers that describe this group of social enterprises:

Trend towards community businesses

Small and medium-sized social enterprises are more likely to be focused on improving a particular community and directly working with residents than their larger peers (41% compared to 29%). And, a greater proportion of small and medium-sized social enterprises are choosing legal structures and identifiers which class them clearly as businesses operating in and for a community, rather than as a registered charity. Almost 35% of small social enterprises (turnover >£1m) self-identify as community businesses (see Fig. 2 in the report).

 Greater diversity

The smaller a social enterprise is, the more likely it is to be led by a woman or someone from a minority ethnic background; leadership becomes less diverse the larger a social enterprise becomes. In the smallest band, 49% are led by women, and 21% have a BAME leader; in large social enterprises, the figures are 35% and 5% respectively.

Working in areas of greatest need

27% of smaller social enterprises are based in the top 20% most deprived areas, almost double the proportion of similarly sized registered charities (15%).

Goods as well as services

Small and medium-sized social enterprises are more likely to be providing goods than larger social enterprises (32% compared to 22%).

Fewer public service contracts

Smaller social enterprises are less likely to be involved in public services: for example, only 13% operate in health and social care, compared to 31% of social enterprises with a turnover of over £1 million.

 Sustainability is tough when you’re small

Profitability rises with size: 47% of small and medium-sized social enterprises made a profit (with 31% breaking even), compared to over 70% of larger social enterprises.

This research is hugely useful to organisations working to support and grow community business and the smaller end of the social enterprise spectrum. It highlights what is unique about these organisations, some of the challenges they face, and the areas where they could be supported to improve. It will also be useful to potential partners, as it evidences some of the key attributes that these organisations can offer – greater diversity, a closer connection to the community and neighbourhood. We are talking to SEUK about how we can incorporate this kind of data into our annual review of the community business market so that we bring together the best data and insights on social enterprise and community business.

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