Every year you likely get many requests to donate to good causes. Retail florists seem to be especially popular targets for charitable organizations because everyone wants centerpieces or other flowers at their event.
Why Give, Anyway?
There’s no doubt you will be asked. The real question is, “Why should you give anything away?”
There are a variety of answers. You want to support the community that has been good to you. It promotes a solid relationship with your customers. It’s good advertising. Or you’re just a soft touch.
Any one reason might fit. From a business standpoint, however, you give because it provides some return. Whether it’s better customer relations or advertising, the bottom line is you think donations will lead to more business. More orders.
Most business owners will tell you that a certain amount of generosity will pay off. But at a certain level, it wastes your time and resources.
Accounting for Contributions
Depending on how much you give away, improper accounting can give bad financial information.
When a retail florist is asked to contribute to a charity, what the requestor usually wants is flowers — a centerpiece or something for the speaker’s platform or registration desk.
The simple thing to do is go to the cooler and give the individual (or deliver) an appropriate arrangement. That’s it. You don’t ring it up. After all, you’ve already paid for the flowers, supplies and labor, so it is getting expensed properly. Why do anything else?
First, by giving away arrangements and not ringing up any sale, you will distort your Cost of Goods Sold (COGS). They will appear higher than they actually are. Second, you will have no record of what you are giving away.
Ring Up a Gift
“What? It’s not a sale,” you’re saying. “I’m not getting paid for it.”
True; however, for your COGS to be correct, the item needs to be rung up just as if it were a sale. Think of the transaction as if you wrote out a check to the organization for the amount of the gift and they turned around and bought an arrangement.
Your cash register wants to know how this sale will be paid. Ring it up as a “Charge.” Make the accounting for contributions easy by using your receivables system to handle the transaction and information.
Set up a house account called “Contributions” or “Advertising.” Charge these non-taxable sales to that account. At the end of each month have your bookkeeper or accountant write off the balance in that receivable account to “Contribution (or Advertising) expense.”
This not only keeps your COGS correct but also maintains a running total of how much you are giving away. From an accounting standpoint, you put in the revenue as a sale and offset that with the expense entry.
Get additional tips from Goodman in the February issue of Floral Management.
Paul Goodman, MBA, CPA, PFCI, is the founder of Floral Finance Business Services based in Tulsa, Oklahoma, editor of Floral Finance and author of The Profit-Minded Florist. email@example.com