It takes a lot to make Lance Clark cry, but a visit to a South African orphanage six years ago was an emotional experience.

While on a trip sponsored by the British government to advise local shoemakers, Clark, 72, a sixth-generation scion of the Clarks high-street shoe dynasty, met children orphaned by the Aids epidemic. He launched Soul of Africa as soon as he got home.

“A charity is not easy to set up. Without a good product and strongmarketing and administration on the ground, you are screwed before you start,” he says. “Money can get lost in Africa if you just donate it. I wanted to create a sustainable trade concept.”

Having founded Soul of Africa with a £30,000 grant from a family trust, his idea was to train unemployed and unskilled women in the Durban area to hand-stitch shoes to sell internationally. The scheme has now raised more than £2m, and that money has been distributed by the charity to build new homes for orphans and supply materials and facilities for making more shoes. Clark insists that the venture is run like a business to keep costs under control.

According to the School for Social Entrepreneurs (SSE), itself a registered charity,wealthy philanthropists tend to set up charities after spending years slogging their lives out in business before something triggers a turning point. It might be a family tragedy or, as in Clark’s case, a striking experience in their professional life.

Nick Temple, the SSE’s director of policy, says: “These people are particularly skilled at squeezing money out of the commercial and public sectors, finding new uses for derelict spaces, secondhand materials and underused people.”

However, he warns: “It can go wrong, and this usually happens if the social entrepreneur spots an unusual opportunity to generate money for his charity. This can take him into different areas, often unrelated to thework he’s set out to do.

Social entrepreneurs need good people around them so they can remain focused.” Social entrepreneurs often form charities for the tax breaks available. Charities do not normally have to pay income, corporation or capital gains tax or stamp duty. They also enjoy 80% relief from business rates on buildings used for charitable purposes and get breaks from Vat.

Founders of charities are increasingly forming Community Interest Companies (CIC) instead, which come under less official scrutiny but do not enjoy so many tax advantages. More than 2,800 CICs have been established since the concept was launched in 2005.

“CICs are designed to carry on social enterprises as a halfway house between charities and ordinary companies and are ideal for social entrepreneurs who are planning to devote considerable time to a project in return for a salary,” says Ted Powell, a partner at law firm Mills & Reeve.

Global Ethics is a limited company that gives 100 per cent of its profits to the One Foundation, a charity that provides clean drinking water, better nutrition and HIV/Aids tests in African communities. It was set up by Duncan Goose when he returned from travelling around the world in 2000 after quitting his job in the advertising industry.

He remortgaged his house and dipped into his savings to raise £100,000 to start the charity, which has amarketing budget of £200,000 a year. Yet Goose calls on his experience and contacts to boost the real value of any promotional activity. When the charity launched in Australia in January, television advertising space worth about A$1m was donated for free.

“We have to look at the market and service our customers to ensure that everyone gets value for money. This means being smart when it comes to marketing and everything else the charity does,” says Goose.

But you don’t need a business or marketing background tomake a success of a new charity venture. Keith Smith was a chemistry teacher and had a pastoral role in his local church when he created the Ferry Project in 1998 to help the homeless in Wisbech, Cambridgeshire. He wanted to raise funds to rent a house and help tenants obtain housing benefit so they could continue to live there.

Churchgoers gave him £5,000 to set the scheme up. Smith used some of the money to appoint a professional fundraiser, who generated £100,000 from charitable trusts in the first year. Today the Ferry Project has a £1m annual turnover, of which 12 per cent is spent on administration. Smith pays himself a salary of £40,000 for his full-time role as director.

“It is hard to reduce the admin costs further because of the bureaucracy involved in helping tenants to claim housing benefit. The whole process can take eight weeks. We have one person working 20 hours aweek to handle this,” he says. He has negotiated rental deals on 29 properties with the Luminus Group, a housing association.

Before you start

Make sure your planned charity can demonstrate to the Charity Commission that its aims will benefit the public
Check that an existing charity does not already support the cause. If it does, could you work with them?
Have a solid plan for raising funds and managing cash flow
Decide who will be the trustees responsible for the charity’s actions under trust and company law
Clarify who will benefit from the donations and how. Many charities lack expertise to distribute money quickly and effectively
Consider a Community Interest Company rather than a charity so you can undertake commercial activities more easily