for-PROFIT Costs
For-profits pay market rates, with some exceptions.
For-profit social ventures generally must pay market rates for goods and services, and can’t rely on volunteers and donations to keep costs down.
Legal Costs
Typically, the legal expense of establishing a for-profit is quite predictable, but more expensive than starting a nonprofit corporation. Tailoring the design of the for-profit corporation to include the features desired by most social entrepreneurs can be complex and time-intensive, often increasing the legal costs of incorporation. This increased cost may be worth the time, money and effort for the social entrepreneur, assuming that these features anchor your social mission, reduce funding friction, facilitate the opportunity for scaling impact, deploy incentives for both financial and impact performance, and provide healthy governance. For-profits also incur mandated recurring legal costs to oversee financings, maintain the capitalization table, and provide required documentation to investors -- all costs that are not incurred by nonprofit corporations. Social entrepreneurs should be aware, that in 2008 the American Bar Association revised its rules on “what counts” as pro bono, permitting lawyers and firms to provide volunteer legal services to appropriate for-profit social enterprises, allowing such services to count as pro bono.
Operating Costs
While many nonprofits strive to keep their costs low to be the best possible stewart of donors’ money, for-profits also face pressure to reduce operating costs in pursuit of profitability. Early stage funders like angel investors and venture capitalists tend to be comfortable investing in high-performing performing teams, systems, and the development of intellectual property with the promise of longer term profitability, but not all funders will be patient as you ramp up to profitability. It’s important to consider how pressures to reduce costs might play out at your organization. Consider how this pressure might affect key inputs for your work, like human resources and your supply chain. As an impact-focused business, you need to be vigilant about the impact of your venture on the social and environmental dimensions, particularly as related to controlling costs in order to drive profitability.