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A Guide for Starting a Private Foundation or Philanthropic Business

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By Kayla Matthews

Today’s consumers are becoming increasingly conscious of their spending habits and keep close tabs on where their money is actually going.

This has led many companies to reconsider their philanthropic efforts and begin supporting charitable causes. And, if you’re one of these businesses looking to boost both your revenue and your giving, investing in a private foundation or philanthropic businesses may be the move.

The Benefits

There are a number of advantages to becoming a philanthropic business or starting your own private foundation. One such advantage is an improved reputation. The public will likely notice the goodwill your company generates and will form a favorable opinion of your brand. This may lead to increased sales and even create a new market, especially in impoverished communities or those without prior knowledge of your products or services.

Moreover, if you donate to a local cause or organization, you’re taking company profits and reinvesting them into the same community that invested in you.

Another benefit of becoming a charitable business is your efforts will likely attract top talent. Younger workers are looking for more than just a paycheck — they want to make a difference. So, naturally, they wish to work for a business that values charitable giving. In fact, 79% of employees want to work for a company that contributes to society. And 55% would choose to work at a socially responsible company, even if it meant a lower salary.

Are You Ready?

So, if you want to attract both customers and employees by giving back to the community, it’s time to seriously consider whether you’re ready to start your own private foundation. Of course, one of the most important things to think about is the amount of money you can dedicate to such efforts. If you’re going to create an in-house volunteer team or commit to donating to a certain charity, there is no minimum cost requirement. However, you must still determine how much you can afford to allocate to philanthropy efforts.

And, in regard to starting a private foundation, traditional guidelines suggest a $1 million to $2 million investment. However, this amount may differ depending on your company’s size and monetary situation. And your initial investment will likely not amount to this large sum. Rather, your business and fellow donors will donate to work toward this goal over time.

It is important to note, though, there is a payout requirement for private foundations. This requires non-operating foundations to distribute 5% of their fair market value of investment assets to charitable efforts each year.

Starting Your Own

Once you’ve decided how much money you can afford to invest in philanthropic efforts, it’s time to begin putting your plan into action. Here are a few important things to keep in mind when creating a charitable giving initiative.

Decide on a Foundation Type

One of the first steps to becoming a philanthropic business is deciding what kind of giving you’ll be taking part in. There are a few options to choose from — partner with a non-profit, start a private operating foundation or a private non-operating foundation. These are three very common avenues your business may choose to take.

Partnering with a non-profit may be the simplest since you’re simply joining a cause instead of creating your own. However, this still entails a fair amount of time, planning and organization. For example, you’ll want to dedicate time to find an ideal nonprofit with which to partner, recruit and manage volunteers, — and willing employees — define volunteer roles, develop an orientation program and actually go volunteer.

Similar to a nonprofit partnership is a private non-operating foundation, which grants money to charitable organizations. And, as previously mentioned, regulations require these foundations to pay out a certain amount of money each year in grants. A private operating foundation, on the other hand, distributes funds to its own charitable programs. This type of foundation must either spend at least 85% of its income, or its minimum investment return, on direct charitable expenditure — excluding grants.

Know the Tax Requirements

The IRS requires all private foundations to submit an annual 990PF tax return since your business won’t be considered a public charity. However, you’ll still be tax-exempt as long as you donate the minimum required amount according to your foundation type.

In order to receive your tax-exempt status, you’ll need to file the correct paperwork and fill out Form 1023 which will inquire as to your foundation’s financial information, grant-making guidelines and other details. Additionally, the IRS may have questions about your application, so be well-organized and prepared to thoroughly answer any inquiries.

 

About the Author: Kayla Matthews writes about communication and workplace productivity on her blog, Productivity Theory. Her work has also appeared on Talent Culture, MakeUseOf, The Muse and Fast Company.

Featured Photo by Sandy Millar on Unsplash

A Mission Bigger Than You Are For The New Year

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By Lindsey Tolino

Blake Mycoskie’s TOMS is an amazing business feat, no?

It’s a business set up with enough profit margin that a pair of shoes can be given away for each pair purchased. Even more notably, it’s a business that sells itself because customers have an immediate role in the mission through a simple purchase.

It’s amazing how much time and money people donate to organizations they want to support. According to the U.S. Bureau of Labor Statistics, about 62.2 million people volunteered through or for an organization from Sept 2012 to Sept 2013. Additionally, Americans gave away $335.17 billion in 2013, according to the National Philanthropic Trust.

Why would people give away this much time and money?

It may be as simple as this – for a chance to make a difference.

blue sky

Maybe people do it to feel better about themselves, maybe to become who they want to be, maybe they want to spend time with others who are volunteering, or maybe it’s guilt-motivated. But all of that pales in comparison with the motivation of feeling like you’re making a difference. We all have lofty thoughts and ideas of how we’d like to change the world, but we have limited resources and time. Consequently, we are happy to give to organizations that are changing the world in a way that we’d like to do.

We want to have a role in a mission that is greater than ourselves, that has an impact bigger than ourselves and that benefits more people than just ourselves.

What does this have to do with your business?

When you have a mission statement that your business can accomplish on its own and that benefits only your business, you create no space for customers to play a role in a greater mission. You limit their role to only profiting your business, rather than to being able to change the world with their dollars.

Selling great products with quality service is admirable. But if that is your mission, then it limits your business, your impact and your customers’ buy-in. An internal-profiting, able-to-accomplish-on-your-own-effort-mission is not really a mission, it’s a business goal.

However, if your grand mission is to change the ethical standards of developing world suppliers by the way you do business — how much more motivated are customers to support you?

A mission that is seemingly unattainable and requires support and action from multiple parties creates a clear role for customers to play. When it is clear that you need customers to accomplish your mission (like TOMS’ one for one – no shoes could be given unless they were purchased), customers can see their role and assume it. Where there is no obvious need for customers to get involved, they won’t.

I’m not telling you to create a manipulative business model with a mission that cons customers into buying in. It should be genuine. People can, and are often looking to, sniff out fake promises.

Yet, at the end of the day, do you really want your business to have been all about your own profit? Or do you want it to have made some bigger impact in the world? If it’s the latter, simply say that. Make it your mission. You can’t do it alone. When you create room for others to help, those who want the same world impact will buy in. They’ll support the business and market it with more credibility than you can. You’ll be in it together. Only then will you make a difference in the world beyond your own profit.

The upcoming new year is reminder that the future is a chance to make a change. If your business’s main mission is self-profit, 2015 holds the hope to make it about a bigger purpose.

Author’s Bio: Lindsey Tolino is a young creative who helps make businesses better. She serves business owners with her words at ToBusinessOwners.com. Follow her on Twitter @LindseyTolino or connect with her on Google+.

Image info: Royalty-free image by Ryan McGuire from http://www.gratisography.com/