Should You Start A Nonprofit or a Social Enterprise?
What is a nonprofit?
A nonprofit is a business that raises money for charitable, social, or environmental causes. Although these organizations can make money, they are subject to regulations regarding how those funds are distributed. For instance, a nonprofit doesn’t pay its executives additional income. Instead, it donates excess profits to support its founding principles. Nonprofits also differ from traditional businesses in that they do not pay income taxes and that any donations made to a nonprofit can be written off as a tax deduction.
What is a social enterprise?
A social enterprise is a company that raises money for charitable causes using conventional business methods like selling goods or services. A social enterprise, unlike a traditional business, does not aim to maximize profits for its owners. Instead, positively impacting society and the general public is its top priority. Social enterprises can be charity organizations, mutual organizations or cooperatives. Depending on the founders’ intentions, they might be for-profit or nonprofit.
Social enterprises vs. nonprofits
Here are some significant parallels and divergences between these two types of organizations:
Mission
Social enterprises and nonprofits’ main goal is to use their operations to better a particular area of society. For instance, these organizations might raise money or provide donations to groups dedicated to combating global warming or reducing the effects of hunger. Because their main objective isn’t to generate profits for their shareholders, social enterprises and nonprofits are similar in this way.
Operation methods
Despite having similar goals, social enterprises and nonprofits operate differently. Social enterprises make money by completing sales of goods and services to regular consumers. Nonprofit organizations heavily rely on government funding and kind donations from private individuals. They might also take part in fundraising events to generate interest and boost donations.
Return on investment
Many social enterprises aim to turn a profit for their shareholders before giving a portion of their earnings to a charitable organization. Additionally, they use a portion of their earnings to enhance their services in order to increase sales. In contrast, nonprofit organizations typically aim to donate the majority of their profits to a charitable cause. Nonprofits can still generate revenue to maintain their financial stability and enable them to carry on their work in the future.
Examples of social enterprises
To help you understand how social enterprise models might work, the following examples are provided:
Thrift store chain
A social enterprise called Donate Applique operates in the northeastern United States. This chain of thrift stores works to reduce waste by finding new uses for old things. It acquires gently used clothing and household goods from locals. It also purchases items in bulk from wholesalers. The store then sells these items to everyday consumers.
Donate Applique splits its profits in half, giving one-quarter to shareholders and the other half to business growth. The company then contributes the remaining 50% of its earnings to nearby homeless shelters. Additionally, it works to hire poor, minority, and underprivileged people into its stores and donates to other charities.
Athletic footwear company
Athletic footwear is sold by the goods-based social enterprise Aristocrat Lace. The company gives two pairs of athletic shoes to kids living in poverty for every $50 that a customer spends in stores. Following the organization’s donation of the corresponding number of shoes based on sales, all remaining profits are distributed to Aristocrat Laces shareholders.
Music education organization
A service-based company called Vibe Veteran offers interested students of all ages both in-person and online music lessons. Vibe Veteran offers discounted rates to veterans interested in learning an instrument, even though it does charge students for lessons. Additionally, this company donates a portion of its earnings to a number of groups that offer therapy and other mental health services to veterans.
E xamples of nonprofit organizations
Here are examples of nonprofit organizations:
Climate change awareness organization
A nonprofit organization called Life Green raises funds to combat climate change and enhance environmental health. Through fundraising activities like taking part in events where donors are called, emailing potential donors, hosting events, and running crowdfunding campaigns, it raises money. Life Green doesn’t employ staff; instead, it relies on the assistance of local volunteers. The majority of the organization’s income is donated, but some money is kept to pay for volunteer rewards and maintain the organization’s office.
Cancer patient support organization
Rewind Fight is a nonprofit organization that raises money for patients receiving cancer treatment at hospitals all over Florida. The majority of Rewind Fight’s funding comes from grant writing. It hires a group of skilled grant writers who produce persuasive proposals and submit them to regional, national, and state grant programs.
Rewind Fight helps cancer patients through difficult times with the money it receives from grants it has been awarded. For instance, it might use the money to pay for individual cancer treatments, support more research into possible treatments, or help cancer patients with family or child care. While the majority of the funds raised by Rewind Fight are used to aid cancer patients, the charity also retains some funds for operating expenses, such as paying grant writers’ salaries.
FAQ
Are non-profits social enterprises?
There are many ways to define social enterprises, but typically they are nonprofit organizations that run businesses to raise money and carry out their missions. In the past three decades, the idea has spread more widely due to a combination of government funding cuts to social programs.
What is the difference between a for-profit business and a social enterprise?
The main distinction between social enterprises and non-profits is the funding source. Non-profits rely on public funding through donations. Social enterprises are businesses, and they need to make money to survive.
