When you are starting your business as an entrepreneur, you’ll have to make hundreds of decisions. One of the most important decisions to make is that of the business model. As an entrepreneur, you need to choose whether your business should be for-profit or non-profit. Making this decision isn’t as easy as it might seem, so here are some tips to help you make the right choice.
What is the Main Difference?
Generally speaking, the difference between these two forms of business has a lot to do with the reason they exist in the first place. Many non-profit businesses tend to arise from the need to serve a humanitarian or environmental need in the community or on a wider scale. But, of course, having a humanitarian cause doesn’t automatically mean that a company should be non-profit.
Perhaps the most important difference between these two models is the way you can generate capital for the business. For-profit business generally raises capital from private investors and other businesses. It also provides these shareholders a return for this investment. Therefore, the capital generated within the business is shared as a profit with different shareholders.
For a non-profit business, raising capital for the business relies often on possible government grants and individual donations. The contributors don’t expect, nor do they receive, a financial return but rather a ‘social return’. All the income generated within the business goes towards the everyday running of the business and towards achieving its specific goals.
The Differences in Transparency
There is also a big difference in transparency, and this is something to keep in mind when selecting the business model. As a non-profit business, you are responsible for providing much more scrutiny to why and how your business makes decisions. Transparency is really important for non-profits, and you need to be able to specify how the money generated by donations is helping your business to achieve its objectives.
To for-profit businesses, this isn’t the main issue. You naturally need to provide transparency but not on the same scale as non-profit businesses do. The income generated by for-profit businesses tends to give them more room for making their own decisions as long as they can provide profit back to the key shareholders.
Consider Human Resources
You must also think about the human resources available. Non-profit businesses are generally run by a small group of dedicated people with plenty of voluntary manpower. As the business is usually run by donations, it is important to focus on keeping expenses, such as salaries, to a minimum.
For-profit businesses have many more opportunities for hiring paid staff because they are more able to generate income for this purpose. Therefore, you want to consider the kind of manpower your business would need and the options you have available for attracting voluntary workers.
Don’t Forget a Hybrid Model
In recent years, there has also been an emerging trend towards a hybrid model. Many non-profit businesses have started to look for ways to stabilize their income, and they have turned portions of their business into a for-profit model. This might provide your business the best chance to grow and to achieve your goals. Likewise, many for business owners are starting non-profits to achieve altruistic goals. If you are ready to start a non-profit, attend our boot camp. Register here.