Shownotes
Social enterprises are businesses that aim to make a difference while staying financially healthy. In this episode of the I Hate Numbers podcast, Mahmood explains how social enterprises can combine purpose and profit, create impact, and still run with the discipline of a commercial business. We explore what defines a social enterprise, how they operate, and what sets them apart from charities or traditional businesses.
Main Topics & Discussion
What Is a Social Enterprise?
A social enterprise is a business that exists to tackle social or environmental challenges. It trades in goods or services but reinvests the majority of its profits into its mission. It’s not a charity, nor is it purely commercial. Instead, it sits in the middle, using business tools to achieve social goals.
Purpose Meets Profit
Social enterprises prove that doing good and being profitable can go hand in hand. They create real impact while ensuring the business remains viable. The more successful the business, the more impact it can make. Profit is not the enemy of purpose. It’s what helps fund the mission and sustain the good work over the long term.
Legal Structures
Social enterprises can take different forms. The most common structures include Community Interest Companies (CICs), Companies Limited by Guarantee, and Co-operatives. Each structure defines how profits are distributed and how accountability is maintained. Choosing the right structure is key to balancing transparency, control, and long-term sustainability.
Funding and Financial Health
Unlike charities that rely mainly on donations or grants, social enterprises trade their way to success. They may still receive grants or investment, but trading income keeps them independent and resilient. Sound financial planning and management are essential. Mahmood stresses the need for strong bookkeeping, cash flow monitoring, and reinvesting profits wisely.
Challenges Social Enterprises Face
Social enterprises face unique challenges. Balancing impact with income can be tricky. They must compete with commercial businesses while upholding ethical values. Access to funding can also be harder because investors look for returns, not just results. Despite this, the sense of purpose and community support keeps them moving forward.
Impact and Accountability
Social enterprises must measure and report their impact. It’s not just about numbers but about demonstrating social value. Whether it’s job creation, community development, or environmental change, they need to show tangible results. Transparency builds trust with stakeholders and reinforces credibility with customers and funders alike.
Examples of Social Enterprises
Across the UK, social enterprises are thriving. Companies like The Big Issue and Divine Chocolate are powerful examples. They combine business models with strong missions. Each shows how profitability and social good can strengthen one another when purpose drives every decision.
Common Mistakes to Avoid
- Neglecting financial planning or relying too much on grants.
- Losing sight of the core mission in pursuit of profit.
- Failing to measure or report social impact clearly.
- Choosing the wrong legal structure without considering long-term implications.
Final Thoughts
Social enterprises are proof that doing good can be profitable. With clear goals, financial control, and community focus, they can thrive and create lasting impact. Mahmood reminds us that purpose and profit are not opposites but partners in success. If you’re thinking about starting or growing a social enterprise, plan carefully, know your numbers, and stay true to your mission.
Episode Timecodes
- [00:00:00] – Introduction: Doing good while making profit
- [00:01:22] – What defines a social enterprise
- [00:03:15] – Legal structures explained
- [00:05:00] – Funding and financial sustainability
- [00:06:42] – Measuring impact and accountability
- [00:08:30] – Common mistakes and how to avoid them
- [00:09:50] – Closing thoughts and advice
Host & Show Info
Host Name: Mahmood Reza
About the Host: Mahmood is an accountant, tax expert, and founder of I Hate Numbers. With over 30 years of experience helping businesses and social enterprises grow, he brings clarity to complex financial topics so you can build a business that makes both money and a difference.
Podcast Website:https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/🎧 Listen & Subscribe to I Hate Numbers
Stay inspired and financially savvy. Listen on Apple Podcasts, share this episode, and subscribe for weekly insights. Plan it. Do it. Profit.
Additional Links
Transcripts
Did you know that there are over a hundred thousand social enterprises in the United Kingdom alone? And wait for it, they contribute an eye-watering 60 billion pounds to the economy. That's the equivalent of each person in the United Kingdom giving about a thousand pounds into the pot. That's not a small change, that's impact.
::They also employ over 2 million people. That's more than the entire population of Leicester, Nottingham, Warrington, and let's throw Oxford into the mix as well. So yes, social enterprises matter financially, socially, and economically. Today's episode is all about understanding what social enterprises are, how they're different from traditional businesses or charities, and the types of business models and legal structures they use and are available for you.
::Now, the episode is essential if you're thinking of starting one, working for one or even advising a supporting one. So grab yourself your drink of choice, put your feet up or kick your hands on that steering wheel if you're driving. Let's get into it.
::Now, firstly, what is a social enterprise? A social enterprise is a business that exists to solve social or environmental problems while at the same time making money. And by money, we mean profits. Now, the key difference is that the profits go back into the mission, not just into somebody's pocket.
::Nothing wrong if you run a private business, but we're talking about social enterprises here. Think of it like this. If a private business says, how much profit can we make? A social enterprise instead will say, how much good can we do with our profit? Social enterprises sell goods and services just like any other business, but it's what they do with the money is where things change.
::Profits are reinvested into their cause whether that's supporting vulnerable people, protecting the planet, or creating fair work and opportunities. They're not charities. They don't rely on donations or grants. They operate commercially, but ethically. Let's explore the main models used in the United Kingdom.
::Let's begin with a Community Interest Company, or CIC for short. Now, the CIC is one of the more popular social enterprise models in the UK, and its use is growing. It's designed for businesses that want to make a profit, but use it for the good of the community. Now, what makes the CIC different to any other model?
::Well, you have to demonstrate and show a clear community purpose. You file a community interest statement when you register and you commit to what's known as an asset lock, meaning the assets and profits must go to the cause, not to the shareholders. Now, there are two types of CICs - one that's limited by guarantee,
::typically, this might be used for smaller or grant-funded enterprises, or one that's limited by shares. Yeah, you heard it right, by shares. Now, this enables you to attract investment and pay small dividends to investors, but there are limits. Think of a CIC as a halfway house between a private company and a charity. It’s flexible,
::it's popular and respected. It's a model that we often set up for clients and it's growing in its popularity and its demand. Now, many charities would even set up a CIC to run their trading or commercial enterprises. It allows risk taking without putting the charity assets at risk. Model number two is the cooperative model.
::Now, this model puts power in the hands of the members, not just a board and not just a boss. It's based on democracy and equality. Every member has a say and profits are shared. Those members can be the staff, customers or the community, or all three. If you're thinking of examples, well, the cart supermarket, fair trade businesses, energy cooperatives, community pubs, all of them follow these values.
::And the core principles include one member, one vote, shared ownership and collective benefit. That's perfect if you want shared control and a strong ethical background. The next module I'm going to look at is what's called the Community Benefit Society, a bit of a mouthful, and I'm going to abbreviate that to Ben Com.
::It's got a nice ring to it. Now the Ben Com is what's known as a type of industrial and providence society. Let's throw another shorthand mnemonic here, and we'll call that IPS. Now there's a bit of confusion creeping in. Don't worry, I'm going to break it down. Now, a Ben Com exists to benefit the wider community, not just the members.
::It is regulated and it's regulated by the Financial Conduct Authority, not Company's House. Company's House is the regulator for CICs and for private companies, and also for charities that happen to be companies as well. More of that later. Now, Ben Coms can raise money through community share issues.
::They can apply for charity-like tax benefits such as exemption from Corporation Tax and they embed community democracy in their structure. So if you are setting up a village shop, a renewable energy project, a sports club, even an arts project, a Ben Com might be ideal for you. Now let's consider private companies where they put themselves out as social enterprises.
::Now, you don't have to be a CIC, a charity or a cooperative to be a social enterprise. Even a standard limited company can be one. If it makes a commitment to social aims and reinvests its profits accordingly, then it ticks the box. You'll need a clear mission statement, ethical practices, and a transparent way.
::Yeah, the key is transparency of showing what you do. Now, why should you choose this model? Well, it's an easier setup that has more familiarity with its users, more control, flexibility of raising funds as well but, and it's a massive big, but you will need to build trust with funders in your audience.
::There's no asset lock or legal obligation to reinvest profits unless you say so. So your values, actions, and transparency matter a lot. In over 30 years experience, very few organisations I've come across that are private companies that are truly social enterprises as well. The next model I'm going to look at is what's called the Charitable Incorporated Organisation, or CIO for short.
::Now, this is a structure only for charities, and the regulator is the Charity Commission. Now, this CIO model gives you legal status as a company, limited liability. So if things go a bit wobbly, things go wrong, the individuals, the trustees, are not personally liable for the debts of the charity. And there's also charity tax perks, things like business rates relief, Gift Aid, and some exemptions from VAT on certain products and services.
::Now, the beauty of a CIO is that you only file the accounts documentation with one regulator, not Company's House and the Charity Commission, just one. As in all these things with charity status comes rules. You must clearly have charitable aims, public benefit, and trustees. You can't just say it. You've got to document it and record it as well.
::You just can't set one up and do what you like. It's not a personal fiefdom. Now, this is great as an organisation for grant heavy or donation driven organisations. It's not idealif you want full commercial freedom. Now there's a head scratch here. How do you know what is the right model for you? Now, here's the golden rule.
::Start with the purpose, not the paperwork. Don't try and squeeze in everything to a model that you find it easier to set up. So ask yourself these questions. What's your main, primary goal and objective? Who are you helping? Who you are aspiring to support? How are you going to raise the money? Where's the money coming from?
::Do you need external investment? Are you okay with restrictions like asset locks, trust the board to assume the ultimate governance of your organisation? Your business plan, yep, that's right, your business plan should guide your choice, not the other way round. Now you can change models later, but starting right saves time and saves stress.
::Now, as a heads up, by the way, many organisations that we support may start their life as freelancers and individuals, migrate to a CIC and then they can convert their CIC at some point in the future to a charity organisation. But substance follows form. Now, let's wrap this up. Social enterprises are certainly not soft.
::They're certainly not fluffy, and they're certainly not weak. They're smart, they're impactful, and essential. They run things from schools, create jobs, build communities, clean oceans, and yes, they pay wages, they file taxes, and they grow. So whether you choose a CIC, A Co-Op, a Ben Com, a private limited company, or a CIO, what matters most is your mission and how you use your money.
::and by money, I mean, your profits. So, if you are ready to blend purpose with profit, there's never been a better time to start. Now a final thought, if you are running or planning a social enterprise, maybe you've worked with one, you might need some help setting one up. You might need some help how to run it.
::You might need some help on how to structure it, budgeting, planning, a whole range of things to think about. So let's talk. Check out the show notes, book a call. I'll help you choose the right structure, build a sustainable plan, stay compliant while staying true to your mission and hey, we can even lend a hand in helping you get the organisation set up.
::It's what we do. So thank you for listening. Until next time, plan it, do it and profit.