For those people choosing to start a business that is close to their hearts like a non-profit or a charity, there is that sense of duality that can occur. We hear so much about things like boosting productivity and creativity in a business so we can get the profits, but there’s the flip side to that which is the morals or the ethics. Therefore, we need to ensure that we get the balance right. What are some of the key considerations for running a charitable business that balances both profit and ethics?
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Balancing the Expenses and Overheads
First and foremost, a business in any form is a business and, therefore, charities or nonprofits need to cover their operational expenses in order to function effectively. It’s important to remember that overheads should be reasonable, and this is why it’s important to understand the various aspects of the finances for the sake of transparency as well as productivity. Learning how nonprofits should handle payment processing, as well as how to deduct certain proportions of donations to cover things like staffing and other in-house practices, is essential because it ensures that as a business you are always serving the needs of the charity without becoming blindsided by profit.
Have a Code of Ethics
When a business is at its very inception, there are so many important components that can keep an organization on the right track. These are things like business plans, but a charitable organization can benefit from going one step further and formally adopting a set of ethical principles.
You could call it a “code of ethics” or “code of conduct,” but it needs to guide the decision-making, and also ensure that, as a business, you are accountable. Common values expressed by a nonprofit or a charity can include equity, transparency, honesty, and integrity. A written code is not just a great way to ensure that you are staying on the right side of ethical practices, but it can also demonstrate ongoing commitments to ethical behavior that makes a major cultural impact on the business and can retain donors, as well as attract the right talent.
One of the biggest problems charitable businesses can have is that they attract people who are incredibly business-oriented, and while leaders may think that they need talent that is more cutthroat so those charities can get the support they need, the reality is that a charity can slowly move away from its core values if there is no formal set of ethical principles in place.
Understanding the Right Fundraising Practices
It is the key component that ensures a charity continues to thrive. Fundraising is something that is akin to the hard sell in business. You may have encountered many fundraisers who had that killer instinct, but when you are focusing hard on ethical practices rather than turning the entire organization into a standard business, you need to bring people on board who have the right set of fundraising practices in terms of their communication and focusing on the donor, which is far more powerful than talking about the organization’s needs. Donor retention and satisfaction are vital, but we must recognize that in these circumstances, the donor is far more important.
Running a Charity Like a Standard Business: Yes or No?
Getting that balance right between profits and ethics is very tough. We need to remember that charities are ultimately businesses but ones that can make a difference away from standard organizational practices. A business needs to benefit a charity or not, but in order to ensure effective operation and financial stability, a charity may benefit from the following:
Legal Structure
Charities can choose from various legal structures that impact things like tax treatment, liability, and the ability to enter contracts. Charities can differ from standard businesses in a number of key ways, such as having a social purpose, and therefore are not able to distribute profits to shareholders and can claim tax exemptions and benefits such as Gift Aid.
Branding and Marketing
Every business needs to position itself in the right way. Therefore, creating a strong brand identity and USP (unique selling proposition) helps a charity stand out, which means that they attract the right client, you know, the words, the donor. Effective marketing strategies are especially important when starting out because making connections using social media and of course building a website are all critical. When a business does not prioritize its marketing, it invariably falls by the wayside, and a charitable organization benefits from a motivation to serve a higher purpose and this can inform so much of its branding and marketing to elicit empathy or sympathy from the target market.
Strategic Planning
Successful charities, like any business, are subject to audits, need to keep records, and must have strategic plans in place. Therefore, having clarity is vital for attracting support and funding.
The Importance of Trust
Trust in relation to the donors is far more important than trust with customers. Charities need to maintain the trust of donors because they’ve got to be transparent, ethical, and responsible when it comes to donated funds. Therefore, every member of staff within your organization needs to be accountable and avoid conflicts of interest. A charity that prioritizes ethics will be far more successful in the long run.
Getting the Balance Right
Profits and morals can struggle to coexist because everybody has their own conflicts either in terms of morals, finances, or our own specific attitudes. An organization that is serving a charitable cause needs to maintain this at the forefront of their minds. Lots of organizations can slowly let the signs of business acumen creep in and this influences their entire outlook which soon means that rather than being a charity it’s populated with people who prioritize profit.
While there are certain safeguards in place that don’t allow this, leaders can still pay themselves a little bit more than is necessary, and therefore it’s always important to remember that for a whole organization to stay on the right side of morals and ethics that the expression “a fish rots from the head down” is always worth remembering.