Social Entrepreneurs carry out the work by launching and growing Social Enterprises. Focusing on the creation of social capital versus profit, these entrepreneurs use business principles to address social issues. They create social value with their work by identifying social problems and taking opportunities to improve them with new and innovative solutions.
Social entrepreneurs are motivated by their desire to see a change in the world they live in. They see problems within social, economic, and environmental settings and refuse to stand by and see nothing be changed. They must constantly develop new and innovative solutions to problems in a constantly evolving society and are driven with the aim of creating social value versus financial profit.
Components of Social Entrepreneurship
1. Social Entrepreneurs identify a social need that lacks the means, whether financially or politically, to progress without direct external aid.
2. A proposition must be formulated that will address the issue at hand that will creatively tackle the social challenge.
3. The enterprise be created and established with the direct purpose and vision that they will ensure an improved social setting for society.
According to the U.S. Small Business Administration, a Small Business is any company that has less than 500 employees. These startups plan on offering a product or service and will employ a staff either immediately or within the first two years of existence. While Small Businesses usually need more funding than a Single Person Service Company, the payout is generally larger. Entrepreneurs of Small Business use friends and family, bank loans, and small private investors to get the usual $25K – 250K they need to start, and after 3-5 years a Small Business may generate $1 – $10 million in revenue.
A term sheet is a document to outline a business agreement. In terms of venture capital financing, it outlines the conditions for investing in a startup business. A term sheet typically includes the amount raised, price per share, pre-money valuation, liquidation preference and voting rights.
Single Person Service Companies are companies that are staffed by one person: you. These companies are typically trade services like therapists, handymen, or attorneys. According to Inc.com about 75% of all businesses in the United States employed one person in 2010. Do the math and that’s over 20 million companies.
The usual revenue range for these ventures is $25K – $250K within the first 2-3 years of operation. They usually require $0 – $10K to get off of the ground. Because the startup costs for Single Person Service Companies are generally low, founders usually seek investments from friends and family or try to bootstrap. Also, since there is only one person working in a Single Person Service Company, marketing efforts tend to focus on local clientele.
Shareholder primacy is a business theory that states that shareholder interests should be placed at a higher priority to all other corporate factors. Through this concept, shareholders are often given numerous powers in corporate decision-making, such as board election votes, or charter amendments. One large criticism of shareholder primacy is that it may sometimes go against Corporate Social Responsibility, where the benefits of the society are assigned first priority before the benefits of the shareholders. Shareholder primacy remains an ideology; there have never been legal requirements that companies must maximize their stock and shareholder wealth.
While franchising is often thought of as a means of building your brand with limited capital outlay, franchising can also provide an additional revenue stream for your business through franchising fees and royalties. Typically, entrepreneurs charge an initial fee for the purchase of the franchise as well as continuing fees on total revenue. Ongoing management fees are charged as a percentage of total turn-over in exchange for sales, marketing and additional support. In some cases, the entrepreneur also acts as a vendor to the franchisee providing supplies, in which case additional revenue is generated based on the mark up of these items.
Franchising typically is done by companies with a well established business and the ability to provide significant marketing support or well-established systems for franchisees to get started. Franchisees pay money in return for using the brand name and relying on the proven business structure already in place. Returns from franchising your business may take longer to realize, so it is not as advisable a funding option for short-term cash flow needs, but can provide consistent, longer term revenue streams for companies in need of cash.
When in need of some quick cash to help fund early projects, it could be as easy as selling some of your current assets; these assets are things like accounts receivables and inventory. Tangible items are usually the easiest to sell for the quick up-front cash so weigh the pros and cons of selling certain items in your vicinity. Sometimes you can even sell and lease back your assets, such as your office equipment, when you sell to a leasing company.
Tap into online markets like Ebay and other auction sites to attempt making the most bang for your buck. If auctioning isn’t your thing, post on Craigslist, local classified ads, join a flea market, or even host a garage sale.
Seller Financing refers to buying a business that has already been established. With the elimination of early startup costs, you would already tap into an enterprise that has a recognized customer base, employees, overhead, and inventory. Specifically, seller financing is the means of financing in which you do not purchase the entire business up front; rather, this type of financing means paying small monthly payments to the seller of the business, similar to the way you would make loan payments to a bank.
Traditional Bank Loans, as the name implies, are loans given directly from a bank. Unlike Lines of Credit (LOC), they are given in lump-sum amounts which means the borrower is required to pay interest on the entire amount, regardless of whether the funds are used for purchases.
Bank loans typically fund larger amounts than those offered through SBA loans. They are most often used by mature companies because they are document intensive, requiring good credit and an operating history of at least 3 years; additionally, the loan must be secured with collateral such as property or equipment which is why typically only more mature companies qualify. Traditional bank loans also often have restrictions on how the funds can be used.
The advantage of traditional bank loans, if one can qualify, is how the low interest rate is when bank risks are mitigated by collateral and thorough credit history requirements. However, rates can be more variable than government back loans as they vary based on personal credit history, financial analysis of the company, and the current economic climate.