Why not-for-profits should care about the rise of social enterprises

Posted on 17 Oct 2023

By Matthew Schulz with Kerryn Burgess, Institute of Community Directors Australia

Cathy ASRC catering — Cathy, 60, originally from the Democratic Republic of Congo, has been working with the Asylum Seeker Resource Centre's social enterprise catering arm since 2021. Source: ASRC website

What exactly is a social enterprise, and is it as great as it sounds?

More specifically, what’s the difference between a social enterprise and a not-for-profit?

The growth and success of the social enterprise sector across the country certainly gives not-for-profits plenty to think about in their own work.

At first glance, social enterprises and not-for-profits seem to have a lot in common. A social enterprise is a business that exists partly or wholly to advance or support a social mission or tackle a social problem – which might be providing jobs for people who are long-term unemployed or have a disability, or helping the environment.

A not-for-profit, similarly, is driven by its mission, whether that’s getting people into work or rescuing injured wildlife.

Both are potentially profit-making. For the social enterprise, profit is imperative for sustainability. For the not-for-profit, profit is not imperative, but a diversity of funding sources is, and if earned income is part of the mix, it can only help your financial resilience.

Scroll down for a quick snapshot of social enterprises in Australia and some handy FAQs.

Training: Join us for free masterclasses during social enterprise month, November 2023

What’s the accepted definition of a social enterprise?

While not-for-profits are clearly defined, with a range of different governance and legal forms, “social enterprise” is not a legal structure in its own right. In fact, there is no legal definition of “social enterprise” in Australia.

Social enterprise is an aim rather than a legal structure or a codified business model. And in their aims, many social enterprises are similar to traditional not-for-profits that exist to provide social services.

Leading proponents agree that social enterprises exist to create social impact through trade, and that they:

have a social, cultural or environmental purpose consistent with a public or community benefit
derive a substantial amount of income through trade
generate a public and community benefit that outweighs any private benefit, and
reinvest most of any profit or surplus in the fulfillment of their mission.

Many Australian governments recognise the above definition. Some recognise certification issued by certifier Social Traders. Others will recognise an organisation as a social enterprise if it can demonstrate its credentials via its constitution, a statutory declaration, or a statement from a third party.

ICDA’s parent company, Our Community, mandates its social enterprise purpose in its constitution, for example.

Some states draw on broader definitions of social enterprises that take in organisations working in childcare, aged care, disability support, employment services and affordable housing, as well as community art galleries, community banks, private schools and tertiary institutions, hospitals, insurers, clubs and superannuation funds.

Aus Social Enterprise Stats Oct2023 Source SEA — Figures from the Social Enterprise Australia report *Business for Good*, 2022

Scope

There are 12,333 social enterprises in Australia, comprising:

4042 in NSW
3148 in Victoria
2174 in Queensland
995 in Western Australia
851 in South Australia
399 in Tasmania
244 in the Northern Territory
180 in the Australian Capital Territory

Economic impact

The total economic contribution of social enterprises in Australia is $21.27 billion, or just over 1% of GDP. The average estimated economic benefit of each social enterprise is $1.77 million (not counting the social impacts of keeping people in jobs, for example).

Social impact and purpose

Social enterprises (at least the 518 registered by Social Traders) spend an average of 31% of their revenue on making a positive social contribution.

58% work in employment and training
35% provide for a community need
13% redistribute profits to a charity or not-for-profit

Who benefits

The top beneficiary areas are:

People with disability
Charities and NFPs
Migrants and refugees
Aborigines and Torres Strait Islanders
Youth

Size

24% micro (1–4 staff)
37% small (5–19 staff)
31% medium (20–199 staff)
8% large (200+ staff)

Maturity

When social enterprises were formed:

46% in the 2010s
23% since 2020
10% in the 2000s
11% in the ’80s and ’90s
10% in the ’70s or earlier.

Job creation

Social enterprises in Australia employ more than 206,000 people, or nearly 1.6% of the nation’s workforce. State and territory employee numbers track closely to the number of social enterprises in those jurisdictions. NSW leads the way with more than 69,000 workers, nearly 20 times the number of the smallest contingent in the ACT.

Social enterprises generate nine jobs for every million dollars in turnover, compared to just one job created for the same amount in mining and construction.

Legal form

The most popular legal structures registered with Social Traders are:

38% public company
21% incorporated association
21% company limited by shares
10% company with a single shareholder

Industry

The top five areas in which social enterprises work are:

Community and social services
Training and education
Catering and hospitality
Business and administration
Horticulture and arboriculture

Sources: Business for Good: The size and economic contribution of social enterprise in Australia (Social Enterprises Australia, 2022); Pace 2023: Profile of Australia's certified social enterprises (Social Traders, 2023)

Deadly Espresso Time coffee is a product of the D-time social enteprise, powered by the SevGen Corporation.

D-Time Enterprises (powered by the SevGen Indigenous Corporation)

SevGen (seven generations) is a Queensland-based charity established in 2012. It runs several social enterprises under the holding group D-Time Enterprises to support its mission-related work.

Its biggest activities are Deadly Espresso Time (barista coffee and retail), Deadly Seasonings Time (salt and pepper), Deadly Bushtucker Time (native fruits, berries, nuts and aromatics) and Deadly Marketplace Time (online shopping). It operates in the Northern Territory as well as Queensland, and it has national ambitions.

SevGen Indigenous Corporation is certified by Social Traders and Supply Nation and is a member of Queensland Social Enterprise Council (QSEC).

Income from those enterprises supports programs such as “Lifta drifta”, which helps school-age youths facing suspension or expulsion; “Modern songlines” which connects permaculture and people; a youth development program dubbed HIPSTAs; and another justice program that helps offenders to tackle court debts.

ASRC Cleaning Services 66 — The Asylum Seeker Resource Centre social enterprise ASRC Cleaning offers training, education and mentorship along with work for staff at the Melbourne-based business.

Asylum Seeker Resource Centre enterprises

The Asylum Seeker Resource Centre (ASRC) – Australia’s biggest asylum seeker charity – is based in Melbourne and runs both ASRC Catering and ASRC Cleaning to create employment for 80 people seeking asylum, as well as training, education and mentorship opportunities for participants.

The cleaning service now provides services to 800 customers, while the catering service feeds conferences, parties, workshops, weddings, corporate launches and more.

ASRC Catering also runs the Journeys Café at two Melbourne locations, and has won multiple awards, including the Good Food Guide’s Food for Good award.

The enterprises work with ASRC employment education programs to assess the skills, language ability and needs of employment candidates, before candidates are equipped with health and safety information and industry certificates and trained to become ready for work.

At the last count, social enterprises added $2.6 million to ASRC revenue. The funds help sustain those businesses, including covering the costs of staff development and operations. The businesses are accredited by Social Traders.

Youngster Co at Karingal Shopping Centre — Youngster.co at one of the many shopping centres where it has hosted tech problem solving sessions using young experts to help older Australians.

Youngster.co puts old heads on young shoulders

Small social enterprise Youngster.co is a privately owned company that connects digital natives with seniors, allowing young people to share their tech knowledge, and get some life lessons in return. The enterprise, founded by a father-and-son team in Coffs Harbour, NSW, has expanded nationally, employing more young people to teach older Australians about Zoom, Skype, Facetime and other online tools, while the young gain essential life skills.

Youngster.co recently partnered with superannuation property owner ISPT to connect young people with seniors at five shopping centres across Australia. Eighty-eight young people conducted more than 1000 sessions to help seniors with their tech issues.

The organisation commits to diverting more than half of any revenue to initiatives “that create public value and benefit individuals and communities”. It has been accredited by Social Traders.

Impact Sustainability team pic — Impact Sustainability helps businesses measure their environmental impact.

Environmental business aims to measure carbon impact

Impact Sustainability is a Melbourne-based social enterprise helping businesses measure their impact on the environment via a software platform.

The proprietary company is backed by a handful of angel investors prepared to wait for dividends in exchange for long-term growth and positive environmental impact.

It is one of Australia’s longest-standing firms in sustainability measurement and is pursuing B Corp (benefit corporation) accreditation and ESG credentials.

The company also supports the environmental not-for-profit Sustainable Table, partly by connecting other businesses with Sustainable Table’s “on the ground” regeneration projects.

What are governments and others doing to help social enterprises?

Key supporters of social enterprises include governments in Victoria, NSW, Queensland and South Australia.

Victoria was the first state to release a social enterprise strategy, in 2017, and its latest strategy runs until 2025. It was also the first to roll out a “social procurement framework” to encourage its agencies to use social enterprises to provide services. Queensland released a social enterprise strategy in 2019, with NSW in the process of developing one. Both also have social procurement policies.

More recently the federal government released the Working Future white paper which mentions social enterprises 29 times and promises to work with social enterprises as part of a jobs “roadmap”.

This includes an $11.6 million promise to “back the social enterprise sector to provide more employment and training opportunities for Australians facing disadvantage”. The white paper outlines a federal plan to “draw on the expertise of the social enterprise sector and build capacity to improve the labour market outcomes of people who experience entrenched disadvantage”.

“The government will investigate opportunities to work with social enterprises to address persistent labour market disadvantage, with a focus on the role social enterprises could play in creating jobs and career pathways,” the report says.

Alongside governments, there are also social enterprise peak bodies in every state and territory and an umbrella group, Social Enterprise Australia, which is pushing for a national social enterprise strategy.

A 2021 national strategy scoping paper by Griffith University’s Centre for Impact Innovation found that the sector remained “fragmented, under-served and not realising its latent potential”.

It argued that the sector should press on with its own strategy without waiting for the federal government to act. The paper proposed releasing a strategy in late 2023 and suggested there were “significant gains to be realised by improving coordination, connectivity and communication”. It said the strategy could complement existing work, better connect policies and social enterprises, and compensate for the lack of support for social enterprise in some sectors and locations.

What’s so good about social enterprises anyway?

Speaking after the recent launch of the Pace 23 report, Tara Anderson, Social Traders CEO, said social enterprises had made a big impact on some of the country’s most marginalised communities.

“Social enterprise is business at its best. It’s the business model of the future,” Ms Anderson said.

“Imagine an economy where every business was a social enterprise. Where instead of business only maximising dividends for shareholders, we had every business creating purposeful impact for communities and the planet at the same time.”

“While organisations everywhere are being challenged to build purpose into business, the social enterprise sector has been doing it for decades,” Ms Anderson said.

She said social enterprises were resilient too, with a close-down rate 2.5% lower than that of traditional businesses.

She said social enterprises were led by people with passion, innovative ideas and adaptability.

“That's the mindset of a social entrepreneur: they do what it takes to make their business work. They have huge passion for their social or environmental mission, and that really drives them to make their enterprise successful.”

She said Social Traders continued to push for businesses and governments to buy from social enterprises.

Social Enterprises Australia CEO Jess Moore said the federal white paper on jobs was “a big deal”, given its focus on social enterprises.

Ms Moore said the white paper contained plans to remove barriers for those attempting to gain work, which “positions social enterprise as a key means to partner with communities to do this.”

The white paper said the government would build on work underway within the social enterprise sector – the Outcomes Fund and the Social Enterprise Development Initiative – to back social enterprise to provide more employment and training opportunities for Australians facing disadvantage.

Ms Moore said the task now was to “pair government goals with the operating reality of social enterprise”.

“It's an opportunity to put the big picture challenge of unemployment front and centre, and … to find practical ways to solve it.”

Op Shop Clothing Shopping i Stock 874887774

Here are some questions we’ve had over the years from not-for-profits about social enterprises.

So, you’re telling us your op shop:

Makes clothing and household goods affordable for people on low incomes
Provides paid employment for long-term unemployed and socially isolated people, and people with disability, among others
Provides unpaid employment experience and training for the same groups of people
Generates some cash each week, after rent, the manager’s salary, insurance and other expenses, to put towards your group’s main aim of providing affordable health care in your community.

Congratulations, you’re running a social enterprise!

If you’re not already using those points in promoting your work, then you should be. A sign on the door isn’t enough. Don’t just do it – tell the world about it.

The only thing you can do as a social enterprise that you can’t do as a not-for-profit is return some of your profits back to your own pockets.

But that’s not a product of being a social enterprise – that’s a product of your company structure.

If you’re a company proprietary limited, large or small, you can give yourself some of the profits and do good. But don’t expect any tax breaks along the way.

If you’re an incorporated association or a company limited by guarantee (for example), you can’t personally share in the profits (although you can draw a salary), but you can still operate all the social enterprises you like. If you want to make money for your group by generating AI portraits of pets so you can use the cash towards rehousing stray cats in Australia, that’s fine.

It sounds as though what you’re really saying is that you want to make money. Not-for-profits can make a profit, it’s just about where that money goes. As a result, you can call yourself a social enterprise, a not-for-profit, or an omnipotent interplanetary collective – it’s inconsequential in many ways. What matters is identifying your specific aim, and then doing your research, honing your strategy, planning your execution, and carrying out the work.

It might be a good time to take a step back and take stock of the fundamentals first. As a board member, your job in all this is weighted towards the “identifying aims” and “honing strategy” end of the business. If you’re spending your time worrying about things like whether you should sell purple widgets, orange jiggers or green gizmos, and exactly what your margin will be on each one, you’re too bogged down in detail.

No. There is nothing magical about calling yourself a social enterprise. It’s a competitive world out there, and as Victoria’s Social Enterprise Strategy 2021–2025 puts it:

Social enterprises in Victoria are predominantly small to medium enterprises (SMEs) and face similar issues to other SMEs and start-ups, such as building business acumen, accessing funding, business planning, marketing, budgeting and tendering.

But that was a rhetorical question, right?

Fortunately, there’s plenty of support available if you’re considering starting a social enterprise, or if you want to find ways to improve one you’re already operating.

Scroll to the end for more general resources about social enterprises.

Why do they want to start a social enterprise? Is it because your organisation really needs the income? Or is it because they’ve identified a social need that isn’t being filled?

If you need the income, then your board is right to be cautious. By all means go ahead and explore their idea, but explore it alongside other means of making money, such as grants, or events, or membership drives, or alumni, or… check out our article about the seven pillars of funding here.

If, on the other hand, your board member has identified a social need in your community, and your organisation is particularly well placed to fill it, and people are willing to pay for it, then you might be on an income-producing winner.

Then there’s a third option. Assuming they’ve identified a social need and you’re well placed to fill it, is it so closely aligned to your organisation’s mission that you should be looking for a way to do it regardless of whether there’s profit in it?

Once you’ve answered the question of why you might start this new project/business/social enterprise/total world domination attempt, you’re ready to start planning.