Dear Abacus,
My company is all about female empowerment and creating a community of women to act as cheerleaders, mentors, and friends to one another. I have an online shop where people can buy t-shirts and branded clothing, as well as find links to our community. We’re clearly very passionate about being socially conscious—that’s why we’ve decided to donate 10% of the money made on our products to a local women’s shelter. It’s our mission to help make a difference. That being said, I’m confused about where to start. I’ve already reached out to the shelter, and we’re striking up a deal. What do I need to do before we make the first donation?
Always,
Dedicated to Donating
Dear Dedicated to Donating,
Wow, that sounds like a great way to help the community and empower women! It’s tempting to jump in with the first sale and donate 10%, but there are a few things you need to hammer out before you can do that.
First, you should decide what that 10% will be taken from. If you’re giving away 10% of your profit, you first need to define what “profit” means to you. Is it 10% of the revenue before the costs, or 10% of the net profit? Will you calculate the 10% before or after you take out the cost of overhead? These options will yield different donation amounts, and you need to be consistent about how you calculate your donation.
Work with a financial advisor to decide what makes the most sense for your company. Create a formula you can use to calculate your donation so you know exactly how much money will be donated from each sale. Moving forward, use that formula exclusively. If you market yourself as a business that donates a specific amount of your proceeds, make sure your formula is accurate so your company doesn’t lose credibility.
When it comes to your books, you’ll need to cut the check and make sure it’s counted as a charity or donation expense on your income statement. Then you can track all the money you’ve donated. Make out a check from your bank account so you can track it. Make sure it is labelled as a donation in your profit/loss and that you get a report at the end of the year that shows how much money you’ve donated to the women’s shelter.
Good luck,
Abacus the Accountant
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