There are more than 1.5 million registered charities in the U.S.1 With so many organizations vying for the same dollars, they typically work hard to distinguish themselves and to provide evidence of their competence. Whether in currently funding some nonprofits, or thinking about supporting others, you also need to feel comfortable that they are effective in putting donations to work. In my work for the Neuberger Berman Foundation, I have had the opportunity to research many worthy organizations. Here are some qualities, among others, that I believe can help set them apart.
Dedication to Mission
First and foremost, an organization should honor its mission throughout its programming. Rather than empty words, a mission statement should be the nonprofit’s “North Star,” and clearly be reflected in the services provided. As a donor, you should find it easy to understand that mission as articulated and, of course, find it compelling in light of your interests and priorities.
When reviewing an organization’s finances, pay close attention to how much its budget allocates to programming versus administrative and fundraising costs. A good rule of thumb is that programming should make up 75 – 80% of expenses.
Compare the organization’s IRS Form 990 to its audited financial statements and annual report. The statements should all be in alignment. Though requiring some work, attention to these details can help reveal red flags.
Finally, consider an organization’s major donors—corporations, foundations or individuals—which are often listed on its website or in its annual report. The presence of a few major supporters can provide some reassurance that the charity has been subject to meaningful due diligence.
Metrics are important, but they aren’t everything; every charity measures success differently. While some may be able to quantify their outcomes better than others, all should be able to share how they have had an impact. It’s helpful to ask for year-to-year results and trends, but also consider the bigger picture. For example, if a nonprofit has expanded its programming to include more locations, overall service numbers may go up, but quality may not be sustained. Alternatively, if outcomes remain flat, but staff retention is high and services are received consistently by clients, the organization is likely providing quality care.
Equally important to outcomes and staff retention is staff leadership and board makeup. How long has the CEO or executive director held their position? What experience did they have prior to leading the nonprofit? Is the board active and supportive, both with financial and fiduciary obligations? These are key questions.
Finally, consider if the organization has experienced any major changes recently. Has it lost funding to government budget cuts or cancelled fundraisers due to the pandemic? Is there new leadership?
Charities should divulge any significant ongoing or contemplated initiatives, such as expanded programming, capital projects or growth in clients served. Given current economic uncertainty, it’s important that they articulate their goals for the future, often laid out in a five-year plan.
All of this may sound a little daunting, but I actually find researching charities to be fun and eye-opening. The more you learn about an organization, the more you may feel comfortable sharing your generosity, and potentially your time, to support its mission. It’s a virtuous circle that’s worth getting started whenever you are ready.
1 Source: National Center for Charitable Statistics, as of June 2020.
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