Business Resource Toolkit – SOCIAL ENTERPRISES AND CHILDCARE |
What is a “Social Enterprise”?
The
Government defines Social Enterprises as "businesses
with primarily social objectives whose surpluses are principally
reinvested for that purpose in the business or in the community,
rather than being driven by the need to maximise profit for
shareholders and owners."
Such
businesses work towards strengthening the ‘social economy’
in their area of operations – combining solid business
practices and the economic and social regeneration of deprived
communities.
To become a viable Social Enterprise, projects need to have an achievable social objective AND a commercially viable business, i.e. one that will primarily be sustainable from its own trading income alone, without material reliance upon Revenue Grants, subsidies or the need for ‘bail-out’ of its losses by another organisation.
Profit – and “Not-for Profit”
A Social Enterprise will therefore, of necessity, charge for its products or services broadly in line with market norms, with the aim of making a profit or a ‘trading surplus’. This is often a distinguishing feature compared to a ‘pure’ Voluntary Sector organisation, which will tend to be more reliant upon external funding and subsidies, and whose charges or fees - if any - may therefore be more in the nature of a nominal contribution towards the underlying costs of delivering services rather than a true reflection of what those costs are.
The structures Social Enterprises use reflect their “not-for-profit” motivation and their constitutions focus on factors that distinguish them as Social Enterprises: their democracy, accountability and community involvement. “Not-for-profit” can be misleading in this context however – as described above, the objective of the trading is to make a profit or surplus. The difference between a Social Enterprise and a conventional business is what is done with that profit. It is reinvested, either back into developing the business, or into the community it aims to support, or both; it is not withdrawn by proprietors for their own purposes.
Social Enterprises therefore share 3 main characteristics:
Enterprise Oriented –viable businesses that bring their service to the local market at an affordable but realistic price
Social Aims – have explicit social aims, accountable to their members and the wider community
Social Ownership – autonomous organisations that have their own agreed governance, participation and ownership structures
Childcare as a Social Enterprise Model
Childcare as a public service is key to developing and regenerating communities, and with ever-increasing demand from parents, communities and Government for good quality children’s services, it is a potential growth area for Social Enterprises. The provision of high quality, accessible and affordable childcare is a social goal in itself, and nationally is one of the main drivers of Childcare Social Enterprises.
Childcare Social Enterprises rely on their markets as their main sources of finance for routine operations, and use Grants (if and when available) to finance specific projects. Key sources of finance for Childcare Social Enterprises are therefore:
Retained profits – surplus fee income once all costs have been covered (and any carry-forward Reserves from previous years)
Bank loans
Community Development Finance institutions
Grants (when available, mainly for ‘Start-Up’ and Capital – grant funding for ongoing Revenue purposes is very hard to find these days)
Social
Enterprises (especially if registered as Charities) may be able to
obtain
beneficial Tax
treatment
and other financial and legal advantages which ‘conventional’
Childcare Providers cannot. However, they aren’t exempt from
legislation such as National Minimum Wage regulations (and staff
costs form a considerable part of any Childcare Provider’s
operating costs, typically 70-90%). The fees the Social Enterprise
charges for childcare and early years services may therefore aspire
to be towards the lower end of local Childcare Market norms - but
they can’t realistically avoid being at least on the “same
playing field”.
Multi-stakeholder and consortium models are particularly suited to the Childcare sector as it draws support from the community to assist in its growth and sustainability. Stakeholders who provide funding or other support at the time of start-up, and then go on to have ongoing involvement with the management and development of the Enterprise, could include families, childcare staff, local employers, regeneration partnerships and initiatives, Local Authorities, Job Centres, FE Colleges and Universities – anyone with a genuine and long term interest in affordable, quality, local childcare provision.
Breaking-even is Not Enough!
You will not help your community by making your services so very cheap that the business loses money, fails, and has to be closed down! The more retained profits/surpluses you build, the less you need to secure finance from other sources, and the greater the prospect the Enterprise will be sustainable. It’s vitally important therefore to appreciate that trading “not for profit” does NOT mean an Enterprise should merely look to break-even (i.e. just to cover its operating expenses, and no more). Aiming for a trading surplus to build reserves and re-invest in the business is essential for stability and security.
Weighing the Balance
Advantages for Childcare as a Social Enterprise
Can assist Local Authorities in meeting childcare targets and help with development of the local economy
Can help start services in deprived areas, and make them more sustainable by maximising the potential of local resources – thus limiting costs and involving the community
Disadvantages for Childcare as a Social Enterprise
Must achieve financial sustainability by generating an income through the provision of childcare – Grant funding can be difficult to find in the first place; is less secure (What will you do if you become heavily reliant upon it and then it isn’t renewed?) and can involve constraints set by the funding organisation (which may not share the Social Enterprise’s aims, culture or understanding of its community)
Local management groups could lack the necessary skills base to manage a Social Enterprise model, and capacity-building work and training would need to be supported
Developing a Social Enterprise Model
There are a variety of Social Enterprise models, all of which are suited to different purposes and varying management structures, and they all have their own advantages and disadvantages. For Childcare, among them would be, for example:
Community nurseries
Multi-stakeholder models
Workers Co-operatives
Development Trusts
Housing Associations
Although it is possible to have a legal structure as an ‘Unincorporated Organisation’ (for example, the ‘Voluntary Management Committees’ that often run small Playgroups or Out-of-School Clubs), the risks and potential personal liabilities for the individuals concerned are such that for a childcare business of any real “scale”, we would strongly recommend it is developed as an ‘Incorporated Organisation’.
Incorporated organisations are:
A legal entity in their own right
Can enter into contracts, own assets and have obligations and liabilities
Provide a formal structure for ‘stakeholder’ membership
Personal liability is limited, as debts are the responsibility of the corporate organisation and not individual members or stakeholders
All these are important considerations if the Social Enterprise intends to employ staff, take on significant property interests or undertake major contractual obligations
The most common models of Incorporation for Social Enterprises providing a Childcare service are as a ‘Company Limited by Guarantee’ or a ‘Charitable Incorporated Organisation’, a Solicitor would advise if one is relevant to your/your organisation’s circumstances.
Conversion
It is possible to convert an existing childcare operation to a Social Enterprise Model, but the timescale and complexity of this task should not be under-estimated. In addition to finding stakeholders, establishing the structure and sourcing the funding for the new venture, it will be necessary to continue to manage and operate the existing business effectively, and without loss of custom, profitability, managerial focus or staff motivation.
There are likely to be three ‘phases’ to such a conversion:
Concept;
Planning; and
Implementation
... (plus of course winding-up the ‘old’ business in the aftermath) – several months may therefore be required. Some up-front funding to pursue the legal formalities and cover the cost of pre-opening expenditure is also likely to be necessary, and it ought not simply to be assumed the ‘old’ business can and should fund the ‘new’ one. Nor should it be assumed that OfSTED would be willing to simply transfer an existing Registration to new owners, even when the premises are the same.
Careful planning and identification of important issues well in advance should therefore feature, and a comprehensive timeline of necessary tasks, their sequence, and their required completion dates is an absolute ‘must’.
Useful Links for Further Information
http://www.charity-commission.gov.uk
http://www.businesslink.gov.uk
http://www.socialenterprise.org.uk
http://www.companieshouse.gov.uk
This information is given in good faith for general guidance only, and is believed to be correct at the time of writing, but we can accept no liability for the consequences of any action taken, or not taken, based upon it. If you are seriously contemplating a Childcare Social Enterprise the support and involvement of a Solicitor, OfSTED and the Local Authority’s Early Years Service is advisable from an early stage.
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