When you are looking to start a charity, it’s a slightly different process to starting a regular business. However, if you want to make it a success, you’re going to need to think in business terms.
So, what are the main differences between starting a charity and starting a regular business? Here, we’ll look at some of the main ones you should be aware of.
The Differences in Tax
One of the main differences between starting a charity and a business is tax. The majority of charitable organizations benefit from reduced or zero taxes. They have a lot more tax filing options too. The type your charity will need to file will depend upon the type of charity it is and how it is structured.
Businesses on the other hand, have several types of tax they need to pay. Very few are exempt from paying taxes.
What about Profits?
While businesses might need to need to pay more taxes, they get to keep the majority of their profits. Depending upon the type of charity you set up, you may not be able to keep any profits for personal gain.
So, if you’re looking to start up a charity rather than a business, it’s not going to make you rich. All profits made by the charity typically need to be put back into it. The laws are different between states. However, for the most part your charity will purely exist for the benefit of the community.
Handling Accounts
When it comes to keeping accounts, it can be a bit trickier for charities. This is because businesses simply need to fill out their income and expenditure. However, charities tend to have funds in several different pots. This means they need to explain why and how funding has been allocated across the different pots.
The accounting rules also often change quite frequently. This means you’re going to need help from an expert accountant. They will be able to help you navigate the complex world of charitable accounts.
Funding
Of course, the main difference between starting a charity and a business is funding. Businesses rely upon selling goods or services to earn a profit. Charities, on the other hand, rely upon donations from the public or businesses. This means they need to spend a lot of time fundraising and constantly driving in donations to keep running.
It can be difficult to continuously secure funding for charities as you are essentially asking people for money without them personally getting anything from it. With businesses, customers receive something for their money.
These are some of the main differences between starting a charity and starting a business. It’s important to understand the differences, especially in terms of tax and accounts. Before starting up a charity, it is advisable to seek professional advice. If set up incorrectly, your charity could be forced to close before it has had a chance to take off.
