2. How do Social Enterprises work?
Social Enterprises try to be financially independent through trading, by selling goods and/or services for a profit. This profit is ploughed back into the Social Enterprise and its mission. This self generated income gives Social Enterprises greater flexibility about how to apply their assets.
Some charities carry out trading, but not all of them do. Many charities have ‘non-trading’ income streams, such as donations or grant funding.
In general, there are two types of Social Enterprise trading:
One
Trading activity that links directly to the social/environmental mission of the Social Enterprise (known as ‘primary purpose’ trading in tax law).
For example:
A cafe that has been set up primarily to provide training and work experience for people with learning difficulties. The majority of those working in the cafe are beneficiaries and other employees are limited to those needed to ensure adequate support and training. Any profits made from the trading are put back into running the cafe. This could further charitable purposes of advancing education or relieving the needs of those disadvantaged by disability.
Two
Trading activity undertaken to generate income that is applied to the social/environmental mission of the Social Enterprise (known as ‘non-primary purpose’ trading in tax law).
For example:
A cafe run purely to make a profit for a social enterprise to cover the costs of another activity that advances its social mission (such as providing free education classes).