How to… set up social enterprises

Geoff Ettridge, an independent adviser on care services, advises professionals on how to set up social enterprises

The government has pledged to support public sector workers in taking over the running of services by setting up mutuals, co-operatives and social enterprises under the Big Society agenda. Many social care professionals may be interested in pursuing these opportunities, but there are a number of challenges to consider. Here are the critical P’s to bear in mind.


The fees for your services need to be competitive and sustainable. Setting a low price that subsequently needs to be dramatically increased could be a fast-track to failure and prices should factor in the cost of building up services from scratch. The operational budget set by the local authority, for example, will not include scope for investment, contingencies or the potential loss of economies of scale which local authorities often have.


Are the facilities that will be transferred to the business in the right place? If the facilities are in the wrong place the service could incur higher transport costs and could well fail to attract users. Also consider how crowded the service’s operational area is with providers of similar services. If it is crowded then the service will need to decide whether it can afford to adopt an aggressive marketing strategy or find a way to distinguish itself from other providers in the area.


Property represents a significant liability. It is probable that the local authority only funded, over a number of years, sufficient repairs to keep a building operational and the premises could be in urgent need of modernisation. It is therefore very important to have answers to questions such as, how much will modernisation cost and how will it be funded? Who is to own the premises? Will it need to be purchased from the local authority? Can it be sold and receipts retained to invest in new facilities? Can it be used to secure loans?


This will be particularly challenging with the increased use of direct payments as individual service users will be free to buy services from whom they choose and possibly change the amount they buy on a day-by-day basis. The challenge will be for the service to reach potential clients and then to promote itself in a way that will encourage people to choose that service over one provided by a competitor.


Regardless of the business model all businesses need to generate a surplus (income over and above operational costs) to invest in service improvements, to develop new services or to maintain a contingency fund. Can the service therefore be run profitably?


Will the service be able to retain and attract staff? Pay and conditions need to be competitive particularly as new staff are unlikely to enjoy the same benefits that come with being employed by a large public organisation. Recruitment to social care positions can be difficult with, nationally, about 20% of the workforce made up of migrant workers, according to research by the Economic and Social Research Council published in 2009. This workforce can be very mobile and without strong local recruitment arrangements the service may have difficulty in maintaining continuity of a quality service.


Linking up with other businesses in the area – including competitors – could help regain some economies of scale with mutual suppliers. Through collaboration new services could be delivered. For instance a partnership between a home care provider and a domestic cleaning service may just be the service that an older person requires – and is prepared to pay for – and very importantly, recommend to others. Therefore, are there possibilities for the service to transform itself into another type of service?

Policies and procedures

Many of the policies and procedures – such as those relating to health and safety, personnel, equalities, managing complaints etc – probably reflect the service being part of a larger organisation. These will need to be redrafted to ensure proportionality and to ensure that services and functions that may have previously been provided by a corporate team, are adequately covered. Failure to ensure proportionality could lead to a lot of wasted time and resources.


Ensure that the outsourcing authority invests as much resource in helping staff assess the viability of the outsourced service as they do in assessing the implications for them.

Read more by Geoff on local government and social services

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(picture: the service will have to appeal to potential clients, such as savvy direct payments users. Rex Features . Model released)

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