Turning the COVID-19 crisis into caring for your community.
Here are our 4 points you should know when starting a social enterprise.
In all the doom and gloom of our current pandemic, many stories of people are helping others, bringing light and innovation to their communities.
You may have got involved with local food drives or helped your elderly neighbours during the initial lockdown. Many people have made an impact in their communities and, individuals are adapting their innovative ideas, and turning these into social enterprises.
A social enterprise is a business that focuses on either social or environmental purposes, delivering for the good of a community or supporting specific groups within the local community.
If you’re setting up a business that has a social, charitable or community-based objective; then you could form a Community Interest Company (CIC). A CIC is a specific type of limited company registered to benefit the community and not private shareholders.
1. Setting up your social enterprise
To set up a CIC, you’ll need:
- Community interest statement which explains what your business intends to do and the range of activities it will offer to those who it benefits
- An ‘asset lock’, which is a legal promise that declares that your company’s assets will be for their intended social goals.
- A constitution model
- Approval from the CIC regulator.
You must seek professional advice to establish whether a CIC is the best structure for your business. There are many publications available on the Gov.UK here for further information.
2. What costs are involved when starting a CIC?
Once your CIC is formed, you will need to consider the start-up costs required to start your social enterprise so you can be prepared for future expenditure. This may include;
- Registering your business
- For equipment
- Any necessary training
- Marketing materials
3. How do I monitor my cash flow?
For your social enterprise to be a successful part of your community, you want to ensure you can manage it financially. By producing forecasts for your cash flow, you will keep track of your monthly costs, such as rent, salaries, and utilities, and identify how much funding you will need to operate your business.
According to Inspire2Enterprise, many CIC’s will prosper that have a cost base that is 75% of their revenue. The additional 25% can be reinvested for future training and development.
To understand the success of your business, you will track your profit and loss account (P&L), as this is critical to your financial health.
This is a statement of your income and expenditure so that you can see how your CIC is performing over a period of time. Several financial elements need to be included, such as costs of sales, expenses and depreciation and therefore you may wish to speak with a trusted accountancy partner to help with the preparation of your P&L report.
Depending on your business trading activity, you may be subject to corporation tax and you will need accurate P&L records when submitting your company tax return to HMRC each financial year.
4. Can I do this myself or do I need an accountant when forming a social enterprise?
Initially, you may wish to handle your own financial records and bookkeeping.
However, as your social enterprise grows, you are likely to spend more time delivering your community goals than the accounts!
Keeping accurate financial accounts is a legal requirement for your business and you could be eligible for certain tax relief schemes, such as the Social Investment Tax Relief (SITR).
Therefore, by working with a professional advisor, you will have the tailored guidance your business needs to flourish, whilst you deliver what you do best to support your local community.
If you have any questions when starting your social enterprise or need assistance with bookkeeping or taxation matters, then please get in touch with our team today.