Updated: May 3, 2021
What is a Social Enterprise?
A social enterprise can be defined as a business with social objectives at the forefront. This means that although their business goals are to make a profit, they intend to use their revenue to also make a social change by contributing to society or the environment. This contribution might take the shape of donations or providing opportunities for those in the community.
A social enterprise also seeks to offer job opportunities for those in at-risk communities. Additionally, their revenue is also used to invest in communities or social issues, rather than benefiting the company.
For instance, a social enterprise may pledge to donate a percentage of each sale to a charity or donate products to those in need for the products that are being sold. This is the buy-on-give-one model.
A social enterprise should not be confused with a social entrepreneur. A social entrepreneur is an individual who develops solutions to social and environmental problems, while a social enterprise also focuses on solving social and environmental problems, they do this through commercial activities.
Although solving a social mission is deep-rooted in all of the activities programs and services that are offered by the social enterprise, unlike a nonprofit, a social enterprise is not as restricted financially. The owner of the company can dictate his/her salary if there is no board and can be paid bonuses. However, it is still a best practice to reinvest the surplus profits back into solving the social issue.
What is a Nonprofit?
A nonprofit, 501(c)(3) Tax Exempt Organization, is a legal entity where its goal is to provide a benefit to society, as opposed to making a profit. Nonprofits usually raise the bulk of their funds through charitable donations. Unlike social enterprises and small businesses, nonprofits are not owned by their founders, they are publicly owned entities that are governed by a board of directors. All revenue raised by a nonprofit is intended to strictly cover expenses and be donated to the business’s purpose. No revenue at a nonprofit should be pocketed by leadership.
A social mission is ingrained in the fiber of a nonprofit. It is the sole reason that the organization was formed. Everything that it does is centered around solving a societal issue.
What is a Small Business?
A small business is a privately owned business that usually has 500 or fewer employees, although the number of employees that qualify as a small business may vary depending on the industry and the location.
These businesses have the opportunity to make as much money as they want to make and disburse them as they see fit within the law. They are also able to do owner’s draws and bonuses.
Although these businesses may give to various social causes a social mission is not engrained in the businesses mission.
What do Social Enterprises, Nonprofits, and Small Businesses Have in Common?
A social enterprise and a nonprofit have a similar goal, which is to solve social and environmental problems. Similarly, social enterprises and nonprofits give back to communities.
Another similarity between these three types of business is that they all need to make a profit to be successful. Additionally, both social enterprises and small businesses are very product and service for pay oriented.
What are the Differences Among a Social Enterprise, a Nonprofit, and a Small Business?
Although a social enterprise and a nonprofit have similar goals, the main difference is mostly nonprofits are funded externally, through grants or donations. While social enterprises aim to be self-sufficient, making a profit through their commercial activities.
Additionally, nonprofits generally are volunteer-focused with very few employees to get the job done, while social enterprises are more employee-focused.
Furthermore, although social enterprises and small businesses hire individuals, the difference is that social enterprises seek to employ people who will benefit immensely from the job. For example, homeless persons or low-income persons, to provide them with an opportunity.
Unlike social enterprises and nonprofits, small businesses seek to make a profit like any other business and all of the profits are used to benefit the owner and the business. There is no expectation that the profits are to be donated.
The similarities between a social enterprise, a nonprofit, and a small business are they all need to make a profit to survive. The differences lie in where these entities get their revenue and where those profits go.
In a social enterprise and a small business, the revenue is gained through commercial activities. The revenue at a nonprofit is gained mainly through donations, grants, and fundraisers. Furthermore, all profits from a nonprofit are expected to go towards its cause. Profits at a social enterprise are reinvested towards solving the social problems and all profits of a small business are used to benefit the business.