How to choose the right charity for your small business

By ,
Ask a Lender
November 30, 2017


Key Points

Ask these questions when evaluating charities

  1. What are my company’s values?
  2. What do my employees care about?
  3. How should my business give?
  4. Is the charity honest, transparent and effective?
  5. What are the tax implications of donating to this charity?
  6. How will I communicate and track the impact of my donations?

Philanthropy is an important holiday tradition, in both the personal and professional realms. Corporate giving in the U.S. totaled $18.55 billion in 2016, according to the National Philanthropic Trust. That’s in addition to the volunteer hours employees contributed to a host of charitable efforts.

Not only does charitable giving support worthy causes, it also builds employee morale, reflects positively on your brand and can be the emotional element that sets you apart from the competition. If your small business is considering participating in corporate giving, consider these six questions to choose the right charity and sustain a philanthropic program that suits your business.

1. What are my company’s values?

It can be difficult to choose from all of the admirable philanthropic organizations, but when you’re just getting started in charitable giving, concentrating your support on one institution makes a more powerful impact. Start by evaluating your business’ values, brand personality, customers and your industry.

The charity that you support should be on-brand, but that means something different for every business. The charity could be a direct connection to your industry, such as an eyewear brand supporting access to vision examinations in developing countries. It could be more in line with the character of your company, for example, supporting a whimsical fundraiser like a charity costume run.

Consider the scale and geographic footprint of your business, as well. A small, local business could have a greater influence on a grassroots charity in the community, while a national chain might look to an organization that operates across the country. If your clients are international, you may prefer a global cause.

2. What do my employees care about?

Philanthropic work influences how your customers and clients see your business, but remember who actually executes the work: your staff. Getting employee buy-in is important if you want their participation. Volunteering and fundraising are positive team-building activities, but employees should not be obligated to participate. Encourage everyone to contribute without demonizing those who don’t have the ability — or willingness — to take part.

Further, it’s wise to consider the political atmosphere when making your choice. Supporting politically active organizations could cause internal discord, which in turn, could ultimately cost you money in disciplinary actions. Keep in mind that a cause that may seem apolitical can still be controversial, which also opens your operations to disruption.

Consider setting up an anonymous poll with a few organizations to choose from to ensure employees have a say in which charity is ultimately chosen.

3. How should my business give?

Businesses can give to charity in a variety of ways, so talk to your employees and customers to get a feel for what they’d support. You could hand over a check for a set amount of money or offer a percentage of the profits. You could also match donations from customers and employees.

Charitable giving is not limited to financial donations. If you’re a startup or simply can’t spare the funds, consider making an in-kind donation. You could volunteer time to the cause or provide services pro bono. It may be wise to start with a one-off donation, volunteer day or fundraising campaign to test the waters before committing to consistent participation.

Note that there are certain legal implications to participating in nonprofit fundraising as a for-profit business, for example through a commercial co-venture. Consult your lawyer before pursuing such an arrangement.

4. Is the charity honest, transparent and effective?

Once you have a charity in mind, take time to research its history, management structure and how it utilizes funds. Read the most recent annual reports and review the financial documents. If the IRS recognizes the nonprofit organization as tax exempt, the organization is required disclose information on its finances and leadership. 

Also, research the organization’s background on websites such as Charity Watch, Charity Navigator or Guide Star, which offer objective analysis of nonprofit operations. Don’t trust nonprofit status alone — unfortunately, some scams operate with a 501(c)(3) or similar designation.

Keep in mind, too, that well-meaning and honest charities may be poorly organized or use a large portion of their budgets to cover overhead as opposed to providing for their cause.

5. What are the tax implications of donating to the charity?

If you intend to deduct your charitable contributions come tax season, there are several eligibility factors to consider:

  • Financial or in-kind contributions are tax-deductible; time volunteered or pro bono services are not.
  • The beneficiary must be eligible to receive tax-deductible charitable contributions as determined by the IRS. Lobbying or social welfare groups typically are not eligible.  
  • Contributions must be under the financial limit of your business entity. C corporations can deduct 10 percent of their taxable income annually, while S corporations, LLCs, partnerships and sole proprietorships can have each owner deduct up to 50 percent of their individual adjusted gross income.
  • Donations must be made in full by the end of the tax year.
  • You must provide receipts and records accounting for every donation. This not only appeases the IRS but your shareholders, as well.

6. How will I communicate and track the impact of my donations?

Establish how to communicate with the organization. Will you receive quarterly or annual updates on how your contributions are making an impact? Will your business or brand be advertised online, in press materials or through other channels? Ensure that private and public communications meet your expectations.

Having concrete figures and information on how your business assists the charity can help build internal support, as well. With buy-in from your shareholders and employees, you can make philanthropy an annual activity and have a larger, more sustainable impact on your company culture, brand visibility and the charitable cause you support. 

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