Non-profits vs Social Enterprises: What's the Difference?

For those tip-toeing the world of non-profit organizations and social business start-ups, the distinctions between the two may not be obviously clear at first glance. Both are organizations that are rooted in doing a social good, yet the avenues through which they both reach their goals are different.

This article will answer all your questions on the differences between non-profits vs social enterprises.

What is a non-profit organization?

The most distinguishable feature of a non-profit organization is rooted in its title: it does not work for profits. That is, all funds generated from the organization is directed towards the beneficiaries of their social issue focus. Non-profits are generally funded through charitable donations from companies, individuals, or even governments. Because of this, nonprofits must put a lot of their time in creating compelling reasons for donations.

Have a look at the Radi-Aid awards for some of the best and worst fundraising videos by NGO's around the world!

Fundraising or donor engagement is a fundamental aspect of the workings of a non-profit. As such, complete transparency of their spending accounts is vital to ensuring a good relationship between the organizations and their donors.

Non-profits are exempt from income tax and donations from outside sources are tax-deductible, unlike all other profit-generating ventures. However, they are still liable for employment taxes for their employees.

A non-profit works toward some sort of social good, such as poverty eradication or improving healthcare. Non-governmental organizations (NGOs), charities, civil society organizations (CSOs) all work under the term ‘non-profit organization.’

Non-profits range in size and reach, from smaller localized and grassroots organizations to international initiatives and globalized campaigns.

Some notable examples of non-for-profit organizations include Amnesty International, Doctors without Borders, Oxfam, and Greenpeace.

Read about experiences interning at various non-profits in Kampala, Uganda here!

What is a social enterprise?

Like the term non-profit, the essence of a social enterprise is based within its name itself. A social enterprise is an entrepreneurial venture that is focused on an end goal of creating a positive social and environmental change, as well as a steady revenue.

A social enterprise sells a good or service that advances a social, economic, or environmental cause.

Social enterprises are structured like commercial businesses, with a business model, a consumer base, and revenue streams. These revenue streams go back into the initiatives of the enterprise (apart from the repayment to investors), creating a self-sufficiency in their operations.

Social enterprises are built like commercial businesses, and are concerned with building profits as well as doing social good.

Unlike non-profits, social enterprises are not tax-exempt.

Ideally, social enterprises aspire to be financially self-sustaining- however, they can be given funds in the form of grants. Investments in organizations striving for social good is part of an initiative that has been increasingly become popularized known as ‘Impact Investing.’ This is a model of investing defined by the Global Impact Investing Network as “Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”

Social enterprises are generally quite environmentally conscious, and strive to be as environmentally sustainable in their business ventures as they are financially sustainable.

Another characteristic typical of a social enterprise is the employment of people who are often marginalized from the workforce, such as women. This allows a wholly contributive initiative by social enterprises on creating social good.

Some examples of social enterprises include Acumen, Embrace Global, Kickstart, and d.light.

Check out this list of  Forbes’ top 30 social entrepreneurs for more!

How are they different?

The fundamental difference between non-profits and social enterprises is the source of funding. Non-profits rely on public funding through donations. Social enterprises are businesses; they generate their own profit to keep themselves running.

The main essential difference between non-profits and social enterprises is where they get their money.

Social enterprises also have a product or service that they sell to a consumer base that helps them in some way; whereas non-profits operate more directly with the social issue through areas like advocacy, direct aid, food relief, and empowerment.

How are they the same?

Non-profit organizations and social enterprises are often grouped together- and for good reason! They both are efforts by organized groups of people to work towards the betterment of some social issue. Within both these types of organizations, the cause is the focus of their actions.

Non-profits and social enterprises both have a social cause that drives the heart of what they do!

Though social enterprises generate revenue, all profits go back into the business. So, while they do create a profit, they operate like a non-profit by directing all funds towards the social, economic, or environmental cause.

It is also possible for non-profits to operate social entrepreneurial initiatives, like the Girl Scouts or Goodwill.

The lines between non-profit organizations and social enterprises are often blurred, and the differences between the two are both quite clear and yet frustratingly nuanced. After reading this article, however, the fundamental differences should be clear.

Experience working in a social enterprise in Ecuador or a non-profit in Fiji or Uganda yourself! Learn more about Insight Global Education!