What to know before your business makes a charitable donation
Before your business gives monetary (or other) gifts to nonprofits, it’s advisable to know a few things about the organization. Below is the short list of items your company might want to review as part of its process for issuing charitable donations.
- Mission and key goals. It’s recommended you know what the organization aims to accomplish. Most nonprofits post this on their website.
- Intended use of the grant funds. You might want to know how the organization will use your gift. For example, most businesses want assurance that it won’t support religious activities. Although businesses are often willing to support churches and other faith-based organizations, they require that the funds support charitable services and products that are non-denominational, non-proselytizing and that benefit individuals outside the congregation. Aside from ensuring they don’t use funds for an excluded purpose like religion or politics, it’s not recommended that you burden nonprofits receiving small grants (say, under $2,500) with a request for information on what exactly the gift supported.
- Charitable status. Many businesses limit their charitable donations to tax-exempt public charities registered under Section 501(c)(3) of the Internal Revenue Service code. A key advantage of this approach is that the federal government has done a lot of due diligence for you. It has established that the organization pursues a charitable purpose, isn’t a for-profit that distributes profits to owners and doesn’t lobby, for example. Also, this tax status ensures donations are tax deductible. This is not as important for businesses as for individuals, however, because a business expense carries similar tax advantages as a charitable deduction.
- The amount of annual revenue and staff size of an organization has implications regarding how it will use your gift and what expectations to set for the gift.
- Governance and executive leadership. The board is the oversight body for a nonprofit organization and the executive director is the day-to-day manager. Both play such a key role in the health or the organization, that you might want to learn who they are.
- Knowing the public story of the nonprofit might help ensure that your funds are put to good use. Have they won awards? Do they have testimonials from credible individuals? Have they been sued? There are also websites that provide background on nonprofits, including GuideStar (guidestar.org) and Great Nonprofits (greatnonprofits.org). Again, this step might be excessively burdensome and, thus, inappropriate for small grants.
Obtaining the above information is usually a matter of requesting information from the organization and/or conducting online research. Of course, for large grants, especially, you might also want to meet with the organizations, call references and conduct other due diligence. The idea is to develop a sensible review process for your organization.