Is Social Enterprise Right for Your Nonprofit?

By Ben Delaney
© 2023 ImmersivEdge Advisors. All rights reserved.

One reason for a nonprofit to consider a social enterprise is to diversify their funding streams. Relying solely on donations and grants can be risky, as these sources of funding can be unpredictable and subject to external factors beyond the nonprofit's control.

By creating a social enterprise, a nonprofit can generate revenue through the sale of goods or services, providing a more stable and sustainable source of income. In addition, many funders appreciate that their grantees are making every effort to secure needed funding through a variety of sources, which increases resiliency while bolstering funders confidence in the CBO’s sustainability.

Another reason for a nonprofit to consider a social enterprise is to increase their impact. While nonprofits may have a significant impact through their programs and services, a social enterprise can allow them to reach a broader audience and address social or environmental issues in a different way. For example, a nonprofit that provides job training for individuals experiencing homelessness may create a social enterprise that employs those individuals in a business that sells goods or services, providing them with valuable work experience and income while also generating revenue for the nonprofit.

In addition to diversifying funding streams and increasing impact, a social enterprise can also create opportunities for collaboration and partnerships. Nonprofits can work with for-profit businesses, government agencies, and other organizations to create social enterprises that address complex social or environmental issues. By bringing together diverse stakeholders, nonprofits can leverage their expertise and resources to create innovative solutions that have a greater impact than any one organization could achieve alone.

Before you launch your social enterprise

When considering a social enterprise, nonprofits must decide whether to pursue a nonprofit or for-profit model. Nonprofit social enterprises, also known as social purpose enterprises, are mission-driven businesses that reinvest their profits back into their social or environmental mission. For-profit social enterprises, on the other hand, operate with the goal of generating profits for their owners or shareholders, while also addressing a social or environmental issue.

There are benefits and drawbacks to each model. Nonprofit social enterprises may have access to funding opportunities that for-profit social enterprises do not, such as grants and donations from individuals and foundations that support social causes. They may also have a greater ability to attract and retain employees who are motivated by the mission of the organization. However, nonprofit social enterprises may face challenges in accessing capital and may be limited in their ability to scale and grow their business.

For-profit social enterprises, on the other hand, may have greater access to investment capital and may be better positioned to scale their business and increase their impact. They may also have greater flexibility in terms of their business model and pricing structure. However, for-profit social enterprises may be subject to more scrutiny regarding their social and environmental impact, as there may be a perception that they are prioritizing profit over their mission.

Ultimately, the decision between a nonprofit and for-profit social enterprise model will depend on the goals and values of the nonprofit organization. Nonprofits should carefully consider the pros and cons of each model and determine which one aligns best with their mission, values, and long-term goals.

In conclusion, there are several reasons why a nonprofit may consider a social enterprise, including diversifying their funding streams, increasing their impact, and creating opportunities for collaboration and partnerships. When considering a social enterprise, nonprofits must decide whether to pursue a nonprofit or for-profit model, each with its own benefits and drawbacks. By carefully considering their options and aligning their decision with their mission, values, and long-term goals, nonprofits can create social enterprises that have a meaningful impact on the communities they serve.

More Info:

CFI (2022) Social Enterprises https://corporatefinanceinstitute.com/resources/esg/social-enterprise/