Is your goal to operate a business that has a purpose beyond profits?
If you’re striving to create a positive change through your business activities, then you may be interested in the concept of a social enterprise.
What is a social enterprise?
A social enterprise is a business guided by a purpose. This could include solving a social problem, helping the environment, improving the community or supporting people.
Social enterprises can operate as either for profit or not for profit businesses.
There is no specific business structure for a social enterprise, so you will need to choose which structure works best for your business.
There are voluntary certifications and verifications that business owners can apply for that provide a ‘stamp of approval’ that the business is a genuine social enterprise. Visit the WA Social Enterprise Council website to find out more.
Tip: Speak to your accountant or tax professional to understand which business structure and profit structure is right for you. Read our choosing an accountant guide to help you find the right accountant for your business.
Creating a social enterprise business model
A business model outlines how your business creates, delivers, and captures value. For social enterprises, this value extends beyond customers to include positive social, cultural, or environmental impact.
Here’s how you can align your business model with a greater purpose:
Define your mission
Start by identifying the social, environmental, or community challenge your business will address. Examples include employing individuals with barriers to employment or offering access to affordable services.
Choose the right impact model
Select an approach that integrates seamlessly into your business operations. Examples include:
- Work focused: your business provides training, skills and employment to people who have difficulty gaining employment.
- Access: your business sells or provides access to products and/or services that meet a community need.
- Redistribution models: your business will donate a percentage of its profits to charity.
- Environmental sustainability: your business implements strategies that address or reverse environmental challenges.
Measure and report impact
Develop clear metrics to evaluate your efforts and include them in your business plan and communications with your stakeholders and the community.
Examples of social enterprise businesses
- A cleaning service that provides employment and training opportunities for individuals recovering from homelessness.
- A software development company that trains and employs individuals from underrepresented groups in tech, such as Aboriginal Australians or women re-entering the workforce.
- A fashion brand that uses sustainable materials and ensures fair wages for workers in developing countries.
- A business that adopts a 'use of surplus' standard, where the business commits more than 50 per cent of its profit (surplus) to the cause they are promoting.
Should your social enterprise be for profit or not for profit?
There can be confusion around whether a business operating under a social enterprise model must be not for profit. This decision is entirely up to you, and it’s best to consult with your tax professional to understand the difference between being for profit and not for profit, particularly when it comes to the regulatory requirements.
For profit
Operating your social enterprise as a for profit business allows you to:
- Attract investors and access funding through traditional business channels.
- Reinvest profits into your business or community impact initiatives.
- Pay dividends to shareholders while prioritising your mission.
Not for profit
If your focus is purely on delivering community benefits, a not for profit (NFP) structure will allow you to:
- Reinvest profits into your mission rather than distributing it to owners or shareholders.
- Potentially qualify for grants, tax concessions, and other funding opportunities specific to NFPs.
It’s important to note that as an NFP, your purpose and mission must align with the requirements set by organisations such as the Australian Charities and Not-for-profits Commission (ACNC).
Seek professional advice first
Before you make important decisions around your business structure and model, it’s important to seek professional advice to understand the long term implications for your business.
Seeking advice from professionals, such as an accountant or lawyer, can help you make the best decision for your business.
You can also get free general advice on starting a business via the SBDC’s free business advisory service. Our team of experienced business advisers can provide advice on assessing new business ideas, business structures, writing your business plan and more. You can also learn a range of skills to help your business start well, survive and thrive by attending one of our low cost business skills workshops.
