One of our family business clients recently asked for a benchmark or assistance in setting an amount for charitable giving from the business. What a great question!

The challenge is that family businesses have such different goals, values and approaches; it is difficult to compare them to each other.

Most family businesses are at least doing nominal charitable giving, such as sponsoring youth sports and local schools or perhaps in-kind donations of whatever product or service they provide. Many family businesses do this without tracking them or even much thought.

When it comes to larger donations, businesses have to think about why they are making them. Some businesses make donations as public relations, perhaps instead of advertising and marketing. These businesses may have larger donation budgets than others, as it combines marketing with charitable desires.

Some businesses make very few donations, explaining that they distribute money to owners and encourage them to donate personally. A few family businesses we know have used the Biblical-tithe as a rule, giving a tenth of their net income, either donating in-year or perhaps setting up a foundation or donor-advised fund. Some businesses set a fixed amount annually, based perhaps on what they did in the past or a number that “feels” right. Other businesses choose to make donations in particularly good years, or perhaps when they sell a line of business or a particular property.

One conversation we’ve held many times is about how important it is to ensure that donations from the business match the family’s shared values while ensuring they support (or at least do not detract from) the business’ goals. In other words, if a donation could lead to bad social media or alienate groups of customers, or if perhaps the recipient organization only matches the values of a subset of owners, then the business should not make the donation. Focus on where the family and its values are in alignment, and ignore the areas where they disagree.

None of this musing answers our client’s question about how much they should budget for charity each year. We would love to hear from you on benchmarking charitable giving – how has your family business set amounts for such donations?

Please reach out about creating a vision and strategic plan to support your legacy.