As a donor, you want your generosity to have an impact. You may have a special cause that you are passionate about or see a unique need and an opportunity to make a difference in the moment. When it comes to giving your time, talents, or treasures, you want to know you are supporting an organization or movement that is effective, efficient, and eternal-minded.
In this article, we will cover some of the technical requirements that donors should consider when choosing a charity, as well as key questions to ask when vetting an organization’s capability to achieve its mission with your support.
Six Questions to Ask About a Charity Before You Give
If you are considering becoming actively involved in or financially supporting an organization, the philanthropic advisory firm, Excellence in Giving, recommends assessing six key organizational components (see below) to determine the health and performance of a charity. Charity evaluation is all about asking the right questions and knowing how to interpret the organization’s answers. It requires more than having breakfast with a charity leader and going with your gut based on their presentation and personality. To begin learning the right questions to ask and how to parse the data presented in an organization’s answers, here is where to start.
1. Leadership — Does an active and diverse board hold the CEO accountable for leading high-performing staff?
Donors should look closely at the leadership of an organization. Is the CEO different than the board chair? If not, the organization lacks accountability. Does the board have more than 5 members who meet regularly and contribute financially? If not, the organization lacks engaged board members who will exercise oversight with a vested financial interest at stake. Are the CEO and staff subjected to annual performance evaluations? If not, the organization can’t know if the right leaders are in place to steward donor dollars towards mission achievement. These leadership dynamics determine whether your donor dollars are maximized for the mission.
2. Financial Management — Are budgets accurate, debt low, reserves sufficient, and financial controls in place to steward every dollar well?
If you are going to give money to an organization, the best thing you can do is understand how they have handled the donations before yours. Sound financial management is the difference between an organization sending you a celebratory note to thank you for your impact or getting a frantic “we have a huge budget deficit” fundraising appeal at the end of the year. Downloading an organization’s 990 or financial audit from their website is where to get answers to these financial management questions, but you may need to rely on an experienced advisor to evaluate their financial health if significant dollars are at stake.
3. Leverage — Are human and financial resources maximized to efficiently serve more clients each year?
Leverage can be one of the hardest categories to understand as a new donor. So, let’s keep it simple. Leverage is achieved when the cost-per-client served, or cost-per-outcome, goes down as the budget goes up over time. Leverage can be achieved through volunteers or technological efficiency, and it’s a sign of competent leadership committed to continuous improvement.
We can’t know everything about a charity’s performance, but we can always know more than we do. In a space filled with good intentions, good is the enemy of the best. Good stewards aren’t satisfied with mere intentions; they do the homework to support the best outcomes. — Dr. Paul Penley, Excellence In Giving
4. Strategy — Does an up-to-date strategic plan contain specific milestones & deadlines for feasible near-term growth?
If an organization can’t tell you when they plan to do what, then neither they nor you can know if they are succeeding. Are an organization’s plans inclusive of prior results and researched trends? Asking for a written copy of the specific tasks and timeline in their near-term strategy is a great way to assess the competency of an organization’s leaders over time. You can immediately determine if future goals are realistic by comparing them to recent growth trends.
5. Impact — Are long-term client improvements measured rather than just reporting the number of annual activities and people served?
If a charity’s annual report celebrates doing a lot of things for a lot of people, all it tells you is that the organization was busy. How do you know if you solved problems by partnering with this charity? Every charity worth supporting will report how people’s lives were better after the charity’s intervention than before. Look for that data in the “Impact” section of a charity’s website or annual report.
6. Sustainability — Does the organization consistently acquire more income each year from a diversified and growing donor base?
Is the charity relying on one large gift a year that could disappear at any time? Donors do not want to partner with an organization just to have their funds help a charity close its doors. Retention of donors is important for long-term sustainability. You can analyze a charity’s quality of communication and revenue trends to gauge their ability to financially sustain the work.
Check The Tax Status
One of the main rules of granting to charities that most donors should know is that a charity needs to be an approved public 501(c)(3) organization. This means that an organization has an IRS determination letter granting them 501(c)(3) status at a federal level and is in good standing. This recognizes a charity’s status, allows them to receive tax deductible gifts, accept public funding, and other benefits.
Before you choose to donate to a charity on your own, you can go to IRS.gov and can use the Tax Exempt Organization Search Tool from the IRS to find out if a charity is a registered 501(c)(3). Other database resources like Guidestar and Charity Navigator provide further information and the tax status of thousands of charities.
If a charity is only tax-exempt at a state level, it does not qualify for tax-deductible gifts.
Matching Your Values
Before you get started finding organizations, it is crucial to connect your values to the causes closest to your heart, so that you can partner with organizations that have the same mission and mindset. What are your guiding values? What are you passionate about? Write them out as a family. Ask each other how the people on the frontlines should be carrying out the work and solving world problems.
Your partnership with an organization will be stronger and likely lead to more impact if you both agree on the values and ethics used in the charity’s mission. For example, at The Signatry our vision is to see the gospel sent out to the unreached on a global scale. Our donors tend to give more to outreach organizations, and gospel outreach is the most popular category of organizations granted to from our community.
When recommending a grant from your fund to a charity that is not already pre-approved at The Signatry, provide the EIN and as much information as possible to expedite our vetting process.
If you cannot locate the answer you are looking for from an organization or charity on these categories from their public website or materials, give them a call or send an email requesting the document. Most charities are happy to discuss what they do and how they do it, and it is a terrific way to connect further if you do decide to become a part of their mission.
Contact Excellence in Giving, a full-service philanthropic advisory firm serving high-capacity donors for over 20 years. They have helped high profile donors find and strategically fund high-impact charities through a careful nonprofit data-gathering and evaluation process. They specialize in making the complex simple so that donors can make informed giving decisions. They can provide you answers to every single question above in concise two-page Nonprofit Analytics.
Remember that the work of some ministries may be sensitive due to the location, people involved, local laws, or other factors. Consider if this is the case for the organization you are reviewing, and it is possible you must reach out directly to receive the details you are seeking.
Looking to discover what cause or charity aligns with your generosity? Work through the three steps to Building a Generosity Plan from The Signatry.