Successful Charity Auctions Start with Careful Planning
Charity auctions are used by nonprofit organizations of all shapes and sizes. Organizations that are thoughtful with their investment in time and planning can realize major benefits from their charity auctions. However, many nonprofits commit to holding charity auctions without committing to the time, planning, and due diligence necessary to realize the most successful event possible. A poorly planned charity auction can potentially impact net proceeds received, damage the organization’s reputation, and even expose the organization to tax liabilities and other possible risks.
With proper planning and consideration, the potential to optimize your charity auction will be greatly enhanced. Managing a successful charity auction is dependent on managing a complicated set of disaggregated steps. To bring clarity to these many steps, R. Michael Sorrells (CPA) and I jointly authored a Charity Auctions Done Right checklist of key “Dos” and “Don’ts,” organized into the following six categories:
Managing and Optimizing Your Auction
Acknowledgement of Donated Items
Quid Pro Quo Rules
Fair Market Value of Donated Auction Items
Form 990 Implications and Compliance
Sales Tax, Permits, and Licenses
Management and optimization tactics are first on the checklist because if some of these important considerations are not addressed early in the planning process, opportunities to super-charge your charity auction will be missed. The key “Dos” on the checklist include starting the planning process early and developing a comprehensive planning outline and timeline.
Another “Do” is to consider using a third-party auction services company that regularly works with charitable organizations similar to your organization. If you choose to not use the services of a professional auction company, make sure to assess the staff and volunteer support capabilities and capacity and plan carefully how to coordinate these in-house resources, both for the pre-auction planning, promotion, and marketing period and for the active auction support period.
The key “Don’ts” in this section highlights a few interesting areas that nonprofits often overlook. First, if you held an auction last year, do not assume that the procedures, processes, and creative themes cannot be improved. Starting the planning process late will push you towards making the same mistakes and limit your abilities to be innovative and facilitate change.
Second, there is a natural tendency to focus on assembling an inventory of auction items with an over-emphasis on quantity. Make sure to consider mission and culture alignment and be sensitive to the values and expectations of your supporters and auction participants. Inappropriate auction items can reflect poorly on a nonprofit organization’s brand and reputation. For example, auctioning off wine, distilled spirits and cigars might attract big bids but align poorly with the mission of an organization focused on drug abuse, child endangerment, or improving healthy living.
The other five categories are equally important, but everything starts with careful planning. Organizations that start planning early in the process will generally be better prepared to understand and address the compliance and reporting issues addressed in the rest of the checklist.
Planning Tip: Sales tax, permits, licenses and other regulatory issues can be unexpectedly complicated, especially if the charity auction event is held in different locations each year. Make sure to check with your tax adviser early in the planning process each year to cover all the bases for these important compliance issues. New regulations and/or changes of location can result in new compliance hurdles that might trigger restructuring of auction logistics, budget, risk mitigation efforts, pricing and even marketing. Identifying the key regulatory compliance issues on the front-end will help avoid back-end surprises and negative consequences.
Reference the Charity Auctions Done Right checklist for additional considerations. Incorporate the checklist into your event planning procedures and enterprise risk management (ERM) systems. Periodically update the checklist to meet the specific needs of your organization. This checklist will help you to optimize results and manage associated risks, both of which are critical to have a successful event each year.
