How To Determine Which Nonprofit To Support

Are you looking to support a nonprofit but aren’t sure which one?  Here are some key considerations for determining whether you should support a nonprofit.

1. Mission and Impact

• Mission Alignment: Does the nonprofit’s mission align with your values and causes you care about?  Nonprofits focus on many different areas – education, arts, animals, basic needs, environment, and more.  Find one that focuses on something you are passionate about.
• Effectiveness: Look for evidence of the nonprofit’s impact. Are they achieving measurable results? Check for stories, reports, or independent evaluations.  Most nonprofits have a website that provides information about their services.  Many also have an annual report that shares information about their accomplishments for the year
• Long-term Goals: Do they have clear goals and a plan to achieve them?

2. Financial Health

• Form 990 Review: Nonprofits are required to file IRS Form 990, which provides financial information. Unlike a for profit tax return, a nonprofit’s Form 990 is available to the public.  You can access a copy of a nonprofit’s Form 990 at the IRS website (irs.gov) or Candid website (candid.org) for free.  Nonprofits are also required to provide you a copy of their 990 if you ask them.
• Overhead Ratio: Evaluate how much of their expenses go toward programs versus administrative and fundraising costs.  While not the only indicator, a reasonable percentage spent on administration (typically 15-30%) is acceptable.
• Revenue Concentration: Determine where an organization is getting its support.  Does it have a diverse revenue stream; support from contributions and program services fees?   What is its public support percentage reported on Schedule A of Form 990?  To maintain its public charity status (i.e. being supported by the public and not relying on one or a few donors), the public support test percentage must be 33 1/3% or higher.  Organizations whose public support test continues to drop or is close to 33 1/3% should raise concern.
• Transparency: Reputable nonprofits publish annual reports, audited financial statements, and budgets.  Remember though, that just because an organization is transparent with its information, does not mean it is effective or a well-run organization.  It simply means it’s sharing certain information with the public.

3. Governance and Leadership

• Board and Leadership: Evaluate the qualifications of the board members and leadership team. Strong governance often leads to more effective organizations.  Most organizations will list their board members on their website.  What types of businesses and organizations do these individuals represent?  What type of knowledge and leadership do they bring to the nonprofit?
• Accountability: Does the nonprofit have policies for conflicts of interest, financial oversight, and transparency?  Nonprofits are required to make their Form 990 for the last 3 years, as well as their tax-exempt application, available to the public.  Other documents such as a conflict of interest policy and financials are not required but many organizations provide them to the public for additional transparency.
• Independent Audits: While not all nonprofits are required to undergo a financial audit, there are certain situations in which an audit is required, for example if an organization expends a certain amount of government funding within a year.  Having an audit performed on a regular basis shows the importance that the organization has placed on its financial reporting and compliance.

4. Transparency and Reputation

• Ratings and Reviews: Check sites like Charity Navigator, GuideStar, or the BBB Wise Giving Alliance for ratings and reviews.  Be careful though.  Some rating sites base their ratings on the amount of information shared.  Organizations that share more information receive a higher rating.  Organizations that are more transparent may be better governed; however, just because a nonprofit shares its information, does not mean it is an efficient and effective organization.
• Public Perception: Are there any negative news articles, controversies, or legal issues associated with the organization?
• Communication: Transparent nonprofits are often proactive in communicating their successes and challenges.

5. Evaluate Your Personal Connection

• Volunteer or Engage: Volunteer or attend an event to see their work firsthand.  Most nonprofits are eager to engage new volunteers, whether through short-term or longer-term volunteer opportunities, that can provide you a personal insight to their work.
• Ask Questions: Reach out to the nonprofit with questions about how donations are used and what they do.  Most organizations are happy to provide a tour or share about their work.

 With 1,887,049 tax-exempt organizations registered with the IRS, 42,816 in Indiana, and 1,819 in Fort Wayne alone, there are an abundance of organizations to support.  You just need to choose which one is a worthy recipient of your generosity.