By Lori Sampson, MBA, EA, CAM
If your nonprofit has had to cancel a significant fundraiser in response to the COVID-19 pandemic, you aren’t alone. Nonprofits across the country have watched fundraisers and donations evaporate following stay-at-home restrictions and widespread economic deterioration. Your organization may now be scrambling to find new revenue sources. There has never been a better time to pursue a private-sector business partner.
It’s no secret, most businesses are struggling just as much as nonprofits. However, don’t assume the current economic environment means companies are not interested in forming a partnership with your nonprofit. There is a strong motivation for businesses to step up their commitment to their community right now.
Businesses Need Philanthropic Partners
Pre-pandemic surveys show the majority of consumers will try a new product or service in response to a business’s support of a charity. More than 90 percent said they would switch between brands based on a corporation’s support for a cause the consumer cared about. Post-pandemic, those stakes for businesses are even higher as surveys demonstrate consumers are watching what companies are doing when it comes to supporting their employees and their communities during this crisis.
Have you noticed a spike in recent advertisements and announcements from large corporations touting new giving initiatives or community-service programs? Right now, business leaders everywhere are actively trying to put a human face on business entities by communicating empathy and support for the burgeoning needs and anxiety across our nation.
Consumers, for their part, are sharing the good things they see companies doing across the country. Social media engagement is at a high and people are actively looking for positive stories, including efforts, large and small, by local businesses. A philanthropic partnership is going to garner businesses much needed positive exposure.
There is also a temporary tax perk for companies to become more charitable. The CARES Act, which created forgivable loans for small businesses and nonprofits, also included a provision to spur corporate giving. The limitation on charitable dedication for a business is usually 10 percent of its modified taxable income. For 2020 only, a charitable deduction can be as much as 25 percent of a company’s modified taxable income. The donations don’t have to relate to COVID-19 response or recovery.
Where to Start
Companies may be looking for ways to make a difference, but it’s up to your organization to present the right company with a planned partnership that benefits both organizations. Identify businesses whose industry is related to your organization’s mission. For example, if your mission is focused on health and wellness, a pool construction and service company might be a good partner. Consider businesses whose customers or clients would be engaged with your mission, even if their business doesn’t relate in an obvious way.
Provide real examples of how the partnership will make a difference in the community. Use storytelling to provide real examples of the power of the partnership. Include a plan for how your organization will provide images and information in an ongoing way to help the business communicate with their clients and employees about the success of the partnership.
Start Small, Think Big
You should be prepared to present a multi-pronged partnership to any potential partner. Know what you want and how you might build on the relationship. There might be some urgent shortfall or need a business partner can respond to and provide immediate impact. But think beyond the one-time cash donation. Consider an ongoing project or need that a potential partner can help underwrite. Will there be opportunities for their employees or customers to volunteer or contribute to the effort? Help them connect their role in the partnership to specific accomplishments or success stories. Explain what problem their commitment can help solve by partnering with your organization.
Consider how this arrangement is a partnership, not a one-way deal. You may not be able to offer free tickets to an event or sponsor table. But how about including the partnership and its impact in a story in an upcoming newsletter or blog? How about including the partnership in your organization’s annual report? On an ongoing basis, your organization needs to share facts and stories of how the partnership has made a difference. They may use this information in their social media feeds, marketing materials, or blogs.
And be certain to acknowledge all donations of time, goods, services, and money. Send multiple thank you messages.
Make Sure Your Partner’s Donations are Donations
Most business donations—whether cash or in-kind—are not considered taxable income for your organization and provide a charitable deduction for the donor. However, there are occasions when a donation might not be tax-exempt and deductible.
If the donor receives a “substantial return benefit” in exchange for the support they are offering your organization, the IRS may consider it a taxable payment, not a donation. This is most often triggered if the benefits offered to the business are exclusive to that sponsor and are perceived as having value. For example, granting your business partner advertising space that other entities pay a fee for.
Other tax-exempt corporate donation no-nos are:
Always provide an acknowledgment of a gift from a business partner the same way you would any other similar donation.
Your nonprofit should write any acknowledgment of a donor’s generosity and philanthropic partnership in your media and marketing materials rather than an advertisement or a promotional piece provided by the sponsor. You can, however, distribute samples of a business partner’s products or information about the company in a neutral way that would not be considered an endorsement by your organization.
It doesn’t matter whether the payment is called a sponsorship or gift or donation. What matters is what your philanthropic business partner receives in return. If the company receives an exclusive or substantial benefit in return for their donation, the IRS will consider the money taxable unrelated business income for your charity, not a donation. The donor will not be eligible for the charitable tax deduction.
There will be tough times ahead for many people and organizations. But, as we are seeing in communities around the globe, we are in this together. Businesses will be stepping up and looking for ways to improve their communities. Your nonprofit organization should consider the best way to serve your mission in tandem with a community-minded business.
Lori Sampson is a partner with Myers, Brettholtz & Company, PA and manages the accounting services department. Her years of experience include working with nonprofit organizations, small business, and homeowners and condominium associations performing part-time CFO, controllership and consulting services. She has been with the firm since 1993.