Giving away 100% of your profits

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Last night, a couple from Ohio, serial entrepreneurs, talked a little about their personal “journey in giving.” It’s amazing how encouraging it can be simply to hear someone else express much the same idea you have in your own heart and mind.

The thing that jumped out at me in what they said — more than anything else — had to do with what they said about their latest company: “We are giving 100% of the profits to our favorite charitable causes.”

“????!!!!” –How can they do that?!? You have to pay taxes, at least!

This afternoon, at lunch, I was able to corner the husband and get a little explanation.

“How can you possible give 100% of profits away?” I asked him.

He said it’s easy. Rather than giving cash gifts, they “buy advertising” in the charities’ publications (you know how local businesses will often “buy an ad” in the program for a local high school’s spring play or musical; that, more or less, is what he and his wife do for their favorite charities); or they hire certain staff people from these charities as “consultants” for their company. (”How can the IRS decide whether or not and to what extent we have gotten “proper value” for the fees we pay?” . . . )

So, in essence, rather than making direct and directly measurable cash donations to their favorite charities, this man and his wife support their favorite charities by, as it were, letting the charities eat up their profits. And if you don’t have profits, you don’t pay taxes. So, indeed, you really can give away 100% of your profits.

Interesting concept.

I’m not sure I want to go there. Among many other “issues” I see with his plan, I don’t like the idea of mixing the strict, highly efficient discipline I demand of employees and normal contractors related to our profit-making enterprise with this kind of — I’m not sure what to call it — “loosey goosey,” rather un-business-like behavior related to charities.

When I run my for-profit business, I demand a careful evaluation of ROI^*, a strict accounting of all time and resources. When we place ads, I always track response rates. — And now I’m supposed to directly mix this kind of disciplined behavior with virtually unaccountable (i.e., therefore, in my book, wholly unbusinesslike) behavior?

I don’t think so!

I’d rather make my money one place, and give it via a separate mechanism.

But that’s my preference.

In case you’re interested in moving in the direction that this man and his wife have gone, I should probably also note that he said “It helps to have multiple companies.” Why? Because if they “over-hire” in the company meant to give away 100% of its profits (i.e., so they actually lose money, from an accounting perspective), they can use that company’s losses to offset profits made in their other companies. Or, put another way: they can use the other companies’ profits to offset the losses in this company. “You probably wouldn’t want to run your sole profit-making enterprise in such a way that it makes no profits.”

No. I wouldn’t. You need profits to create “seed corn,” is it were, for the next year’s operations.

^* Return On Investment.

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