Pros and Cons of For-Profits vs. Nonprofits

Question:

I am a social worker by profession. So starting up a nonprofit makes the most sense to me. However, I truly believe that what I have to offer can be profitable and altruistic. I need some guidance, once and for all, so that I can really move forward with my business. —Janice Ferebee, Washington, D.C.

Answer:

While there are plenty of reasons to launch a nonprofit social enterprise, there are just as many reasons — if not more — to set up a for-profit business. Finding funding is often easier for for-profit enterprises, as investors typically want to make a return on their investments. However, even for-profit social ventures have more difficulty raising capital than regular for-profit businesses because investors generally look for a faster turnaround than the kind social enterprises tend to deliver. Also, depending on your mission, raising funds from philanthropic investors may be easier.

A better strategy might be to factor in your end-product, says George Overholser, founder and managing director of the NFF Capital Partners, an organization that helps nonprofits attract capital in a form similar to equity in New York. Will people pay for it? Or, is your firm only viable with fundraising?

You'll also want to consider your mission, Overholser says. "Non-profits work where you need to telegraph that you are a trustworthy agent," he says. "People often have a harder time warming up to a company's mission if it's a for-profit entity." (For our story weighing the pros and cons of for-profits and nonprofits, click here.)