Monday, August 21, 2006

How to make money from charity organisations 12 comments



(P.S: Sorry for any disturbances the advertisements above may have caused you)
Note: For all serious charity organisations, please forgive my unwitting trespasses.

From my observations the last year or so, it appears that starting a charity organisation is a really good idea. Registration red-tape is minimal (as has been pointed out in the papers today), revenue source is relatively low-cost because you don't have to show as much value-add as you have to tug at people's heart-strings, and what's even better, these contributors don't really care where the money goes to because generally the contributions form a small part of their income and they feel they have "done their part" after forking out the money.

Let's look at a few ways to make money in a charity organisation:

Paying yourself high remuneration
A concept immortalised by the "peanut" salary of $600k/year paid by TT Durai to himself, approved by a remuneration committee in a board dominated by himself. In addition to monetary compensation, why not pay yourself in kind as well, through necessary luxuries like first-class travel, gold taps etc. See a related article on the NKF.

Another example to emulate must be Mr Vincent Lam of Youth Challenge who cashes in $13k/month (or $156k/year) on an organisation revenue (read: funds raised) of ~$400k/year and reserves of ~$100k. What a high expense ratio the organisation has. Depending on how one interprets the profit margin, it is a really good business proposition (How do we interpret profit here? Benefits accruing to the beneficiaries of course. The youths? Of course not, stupid.)

After slogging for several decades and being entrepeneurial enough to found the charity organisations, this remuneration is only what you deserve. Besides, your peers are all earning substantial amounts as well, so why not you?

Related-party transactions
Although the charity organisation was founded by you, strictly speaking you do not have a share in the organisation.... it is a public organisation, with equity from the general public. You are a trustee/manager. However, it is possible to own stakes in private companies on the side to which you can farm out the various outsourcing services required by the charity organisation you are empowered to manage.... for example IT, marketing.

The "float"
This is the investment concept made famous by Warren Buffett. In his early days he was managing a small fund and was thinking it was a shame he could not parlay his investing skills that yielded >20% annual returns to a larger capital base. Then he discovered the insurance float which gave him access to huge insurance premiums where the cost of capital could be deferred to a period far back. As long as charity funds are kept in reserve instead of being paid out to the intended beneficiaries, they essentially are the "float"; imagine what a private full-time investor can do with these funds!

Now for some constructive opinions .... a definite requisite of any critical blog article nowadays. I guess the newly-formed charity supervisory council should have covered all the angles, in particular the governance aspects which appear to be the most lacking. Corporate organisations increasingly try to align management objectives with shareholder objectives by payment of options rather than fixed salaries, such that management will try to create shareholder value (ie. higher profits, higher shareholder total returns). Who are the shareholders for charity organisations? It is either the giving public or the receiving needy, but the common objective must be to maximise assistance (both short-term and long-term) for the target audience. Pegging the performance of charity organisations to the number of people helped and the quality of help rendered relative to the funds raised/in reserve, and then pegging management remuneration to such performance, may provide some form of objective alignment similar to options (if we see greater assistance rendered = greater shareholder value). In other words, somebody should really come up with a set of key performance indicators to judge value-add objectively. While over-regulation runs the risk of being counter-productive, perhaps one should tighten the screw and then release it gradually, when there is increasing evidence of slack governance.

 

 

12 Comments:

Blogger DXXL said...

Personally, I don't believe in giving a lot to organised charity. I prefer to give directly -- to the blind musician in the Orchard Underpass; the harmonica uncleat the bottom of the escalator of Shaw Centre and the legless tissue seller in the same underpass. At least I know every cent I give goes to the charity -- ie the person needing the money, instead of 85 cents in the dollar or whatever. --L

8/23/2006 3:36 AM  
Blogger DanielXX said...

Well Ly we all try to do our bit for charity :-)

8/23/2006 7:05 AM  
Anonymous Anonymous said...

MAYBE WE ARE ALL MISSING THE POINT HERE. IF YOU REALLY THINK THAT GIVING TO TODAYS' CHARITIES HELP THOSE IN NEED YOU ARE, FOR THE MOST PART WRONG. VERY FEW OPERATE AT A MORALLY SOUND LEVEL.

I APPLAUD THE AUTHOR FOR MAKING SOME GOOD POINTS, HOWEVER HE DID NO MORE THAN TO REPEAT WHAT PEOPLE SHOULD ALREADY KNOW. THE EASY ROAD OF GIVING LEFTOVER AND BASICALLY WORTHLESS STUFF TO A CHARITY YOU FOUND ONLINE IS HARDLY THE WAY TO SAINTHOOD. MOST PEOPLE DONATE FOR THE MANY NUMBER OF INCENTIVES OFFERED BY THESE CHARITIES. THAT IS NOT BEING A GOOD SHEPARD. HOW CAN WE SIT HERE AND DEBATE THE MORALITY OF THESE ORGANIZATIONS WHEN WE OURSELVES ARE THE DRIVING FORCE BEHIND THEM. GIVING DIRECTLY AS STATED BY THE OTHER CONTRIBUTER IS A DECENT IDEA, BUT DO YOU DEEP DOWN REALLY THINK THAT HELPS. PLEASE SAY NO. DID ANY OF YOUR RELIGIOUS MEN OF THE DAY GIVE MONEY AS A FORM OF HELP???? NO! THEY GAVE WHAT PEOPLE NEEDED. FOOD, DRINK SHELTER. TRY THAT ON FOR SIZE. I KNOW ITS A HARSH WORLD AND I AM NOT BELITTLING ANYONE HERE. ALL OF US ARE HIPPOCRATIC TO SOME DEGREE BUT BLAMING OTHERS IS JUST MASKING OUR OWN SHORTCOMINGS.

7/29/2008 8:09 PM  
Blogger DanielXX said...

Hello A, 1st of all don't type in caps la it's supposed to be rude but anyway I'll interpret that as passion. Well your point is basically that charity organisations are useless but also that we should not be hypocritic and criticise others when we ourselves don't do enough? Not too sure about your point after all but anyway I think it's important that we fend for our immediate relations before thinking about do charity for others. There're several public assistance schemes and I wonder if the government could do more to publicise them to the really needy because the feedback appears to be that many many of the really needy are aware of them. This might just be the most useful form of assistance that we can lend them.

7/29/2008 8:29 PM  
Anonymous Anonymous said...

Well I believe I can piece together what you are saying. Basically, again you are asking the government to step in and take care of the situation. One point I might make is that the top tier of this country do not want to "perfect" the donation process. They like it the way it is. It is quite a tax benefit to set up a charitable annuity, ( which most large donations are turned into.) The system like most, are flawed for a reason. The point I was trying to make is that we as the masses need to realize the power we have. We want a non profit to make our donation process easy and hassle free. We don't want to really bother ourselves with the it. You yourself just stated that you believe the government should look into the matter and regulate the situation. Why not police the whole situation ourselves. we know right from wrong.
Our entire country is set up to believe that we are more entitled than our neighbor to have, material things. We shouldn't have to hassle with giving because we already work hard and the charity should be happy with whatever they get. What happened to getting our hands dirty. Donate you; the most valuable asset you have. that would truly be making a difference. the hardest road is usually the correct path.

7/31/2008 12:04 PM  
Anonymous Anonymous said...

no comments??? darn i love a good debate

8/01/2008 11:33 PM  
Blogger DanielXX said...

Well the point is not really to have a debate and see who can out-argue who. If you ask me, personally I feel donating yourself and believing that every drop will yield an ocean is morally appealing but I don't really believe it is adding much help. Perhaps one day when I'm really rich I would like to leverage those riches to do something on a large scale to really have an impact on a large number of needy. Meanwhile, I still believe that the government, being clearly the best-funded party around should have an obligation to make known the various assistance schemes it offers because not many of the real needy are aware of it, somehow. It's just not well-publicised and people seem to think there is no welfare at all even though there're some available. It is heart-rending to see old men scavenging cans from the wastebins and old women with bent backs clearing trays at hawker centres. These are the pioneers who are responsible for the "First World" that we are today.

8/02/2008 8:01 AM  
Anonymous Anonymous said...

THEN WE SHALL CONTINUE TO OBSERVE THE SYSTEM...................THANK YOU FOR THE CONVERSATION

8/08/2008 11:53 PM  
Anonymous Anonymous said...

we are starting a charity that is nonprofit and are just accepting donations and our allowance thanks!!!

12/18/2010 8:37 PM  
Anonymous Anonymous said...

"Personally, I don't believe in giving a lot to organised charity. I prefer to give directly -- to the blind musician in the Orchard Underpass..."

and I'm sure by some divine magic you are located precicely where your charitable donations are required. anyone out of your reach and in need of charity, should live nearer to someone like you clearly.

I think there is a great need for organised charity, and a great need for the issues pointed out here to be addressed. because for charities to recieve donations, they have to behave trustworthy. and of course not waste the money donated to them. all the good work you could ever do does not justify you having a luxury lifestyle if it's at the expense of giving more help

1/01/2011 10:30 AM  
Anonymous Anonymous said...

I agree with the tone of this article
this article is not about charity at all it is about making easy money
observing the easy flow of money that these larger charities are involved with
it really does seem like a good business plan
perks hospitality nepotism
just like doctors at there drug company lunches etc etc

finding a way to incorparate your charity with all the nursing homes you set up for the elderly

PROFIT! PROFIT! PROFIT!
out of the misery of others
its a huge business

for £3 per month i can adopt a snow leopard

for £2 per month i can pay for a African child to drink clean water

i went with the snow leopard as you get a cuddly toy with that offer!

11/25/2011 7:59 AM  
Anonymous PENNY STOCK INVESTMENTS said...

Some excellent suggestions.

2/09/2014 11:06 AM  

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