ORGANIZED GIVING IN FAMILY ENTERPRISES
Many business owners engage in charitable giving, either as private individuals or in their corporate capacity. This charitable giving can take many forms, including sponsorship of local charitable events, donation of excess inventory, and sustained philanthropy in one or more areas through the establishment of a formal foundation or council. Whatever form the charitable giving takes, experts and entrepreneurs agree that such activity can have a beneficial impact on the company as well as the charities and institutions it supports.
Business experts agree that charitable giving is an activity that, when considered by family-owned businesses, is particularly rife with both opportunities and challenges. The chief pitfall of charitable giving by members of family businesses is lack of communication. According to a report, “Charity may begin at home, but when it makes its way into the family business, a common problem occurs: each family member writes out checks at random, and no one keeps an eye on the big picture – mom’s giving to the cancer society, dad to the police athletic league, and the children to Green space. When you tally up the total donations for the year, you find a lack of direction and consistency in your family’s support of charitable causes.” Owners of family businesses should organize their charitable giving in a cohesive way that can benefit both deserving non-profit organizations and the business itself. With a strategic plan in place family business can actively choose the charities that support both business and personal goals.
Organizing a Strategy for Philanthropic Giving
There is no one organized giving plan that all family-owned businesses should adhere to. Indeed, small and mid-sized family businesses utilize a broad range of charitable strategies, many of which are tremendously effective despite their differences in emphasis, direction, and execution. But most successful giving programs share a common characteristic that is also a hallmark of success in the business arena – proper research and planning. Family businesses seeking to establish a program of charitable giving need to recognize that such policies are predicated on three major issues – choice of charities, size of donations, and the vehicle that will be used to execute donations.
Choice of Charity or Charities
Some family businesses choose to provide financial support only to causes that are personally important to family members, regardless of their influence on the business or industry in which the family is involved. Other families, meanwhile, may choose to steer their charitable giving toward `areas that also impact on the family business. A publisher that chooses to support literary causes, for example, can publicize that connection and boost its image in the minds of consumers; a paper manufacturer that supports environmental and deforestation causes can create good will in the community.
Of course, many families will discover that agreeing on the primary recipients of charitable giving program is no easy matter. Some family members may be enthusiastic supporters of a non-profit organization, only to find to their dismay that other members are lukewarm or even hostile to that organization’s goals and mission. In such instances, consultants urge individuals not to adopt an intransigent position or engage in “tit-for-tat” negotiations in which approval of a charity is withheld until family members agree to provide financial support to a cause to which they may not be enamored. There are plenty charities out there upon which everyone should be able to agree. In instances where disagreements breakdown along generational lines, another option is to create a three-to-five-year plan in which the causes favored by one generation give way over time to those favored by another.
Deciding How Much To Give
The size of charitable donations that family-owned businesses give is, of course, directly linked to the size and fortunes of the family business. A family-owned lumber business with several locations and a host of reliable corporate clients is obviously going to be able to make larger donations, if they are so inclined, than are the owners of a single sporting goods store. But no matter what the sum total of donations is, family members should make sure that they arrive at the total together in an informed fashion. That is, organized giving totals should be arrived at with an eye toward the business’s current financial standing and its future business plans and prospects. A company poised on the brink of a major expansion effort, for example, may adopt a more modest strategy of organized giving than would a mature business helmed by owners who have decided to devote more time to raising children or other personal matters.
Another consideration that members of family-owned businesses need to weigh is their allocation of time to charities. Certain individuals may be enthusiastic supporter of a charity, giving considerable amounts of time and talent to the organization in order to advance its work. Such selflessness is laudable, but it can also give rise to resentments among fellow family members if they begin to feel like they are taking on an unfair share of the company’s workload as a result. For this reason, family members should make sure that they communicate the needs of the business as well as the charity to one another through regular meetings. Of course, sometimes a business may find that extensive involvement in charitable work can also pay dividends for the company. Hands-on involvement not only demonstrates a tangible commitment to the charity’s work, but also allows you to network with others in the business community.
Choosing a Vehicle for Giving
Many a family-owned businesses has chosen to establish a philanthropic foundation to guide its charitable activities. This is especially true of families that own larger businesses that can afford to make donations of considerable size. If you plan to donate more than $250,000, there are advantages to setting up a foundation, which is a legal entity recognized under that state law and by the IRS as a non-profit organization. Although subject to somewhat complex rules, all contributions to the foundation generally are tax-deductible, whether they are made by family members or by non-family members who support the foundation’s goals. A foundation also allows you to accumulate contributions over time – tax free – to donate to your chosen causes. That might allow you to build up principal for, say, an on-going school scholarship. Before committing to a foundation, however, business owners should consider the various restrictions that apply (foundations are required by law to distribute a minimum of 5 percent of their net worth to charities very year, for example) and the legal and accounting fees associated with running it.
Another option that some family businesses pursue is the formation of a charitable council. Like individuals the council can give tax-deductible donations to charities. However, because councils are not recognized by or accountable to the IRS, there is no opportunity to accumulate principal tax-free, and contributors do not receive a tax break, on any direct contributions to the councils’ funds.
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