How To Determine A Nonprofit’s Health

Choosing to support a nonprofit organization is a significant decision, whether you’re considering a donation, volunteering your time, or joining its board. Understanding how well an organization is run can help ensure that your contributions are making a meaningful impact. A well-run nonprofit is not only effective in achieving its mission but also transparent, accountable, and financially sound. Here’s a guide to evaluating whether a nonprofit organization is well-managed and effective. 

 Assess the Mission and Goals 

A clear, compelling mission and strategic goals are the foundation of a well-run nonprofit.  Ensure the nonprofit has a clear and specific mission statement that outlines its purpose and objectives.  Look for well-defined, measurable goals that align with the mission. The organization should have a strategic plan that outlines how it intends to achieve these goals. 

 Review Financial Health 

Financial stability and transparency are critical indicators of effective management and accountability. Review the nonprofit’s IRS Form 990 and financial statements.  Nonprofits are required to make their Form 990 available for public inspection.  Form 990s can also be found online at the IRS website and GuideStar website.  Although not required, some organizations make their financial statements available to the public on their website.   

Key indicators of financial health include positive net assets.  Does the organization have a healthy, positive net asset balance and manageable liabilities.  Net assets without donor restrictions are those that support everyday operations.  Net assets with donor restrictions have been restricted by the donor for a specific purpose.  Since these have been restricted by the donor, they can only be used for that purpose, not everyday operations.  

Look for consistent revenue growth and reasonable expense management. A high percentage of expenses allocated to programs rather than administrative or fundraising costs is a good sign.  The organization should have a good balance between fundraising expenses and the amount raised.  The allocation of expenses will vary based on the organization, its programming, where it is in its lifespan, and if it has a capital campaign taking place.  Consider the organization when evaluating the percent allocations for expenses.   

Evaluate Program Effectiveness

A well-run nonprofit should demonstrate that its programs and services are achieving their intended outcomes.  Check if the nonprofit measures and reports on the effectiveness of its programs. Look for data and metrics that demonstrate the impact of their work.  Review any evaluations or audits conducted on the organization’s programs. Independent evaluations can provide insights into the effectiveness and efficiency of the programs. 

Review Governance and Leadership

Strong governance and leadership are crucial for strategic direction, oversight, and ethical management.  Assess the board of directors’ composition and expertise. A well-run nonprofit should have a diverse and experienced board with members who actively participate in governance.  Evaluate the qualifications and track record of the executive leadership team. Strong leadership is often reflected in the organization’s success and stability.  Ensure the organization has comprehensive governance policies, including conflict of interest policies, whistleblower protections, and procedures for board meetings. 

Check for Transparency and Accountability

Transparency and accountability build trust and demonstrate the organization’s commitment to ethical practices.  Organizations are required to make its tax-exempt application and Form 990 available to the public.  Although not required, many organizations also make their financial statements, annual reports, and other policies available.  Review the organization’s transparency regarding its operations, finances, and decision-making processes. Clear, open communication with stakeholders is a positive sign.  Verify that the organization complies with legal and regulatory requirements, including timely and accurate filings with the IRS and state agencies. 

Review Volunteer and Donor Satisfaction 

Positive experiences from volunteers and donors often reflect well on an organization’s management and operational practices.  Look for feedback from past and current donors. Satisfied donors are typically engaged and supportive of the organization’s work.  Many foundations disclose publicly on their website or through news and social media sources who they have awarded grants to.  Who has supported the organization?  Review testimonials from volunteers. Positive experiences often indicate effective management and a supportive work environment. 

Assess Community and Stakeholder Engagement 

Effective nonprofits actively engage with their communities and stakeholders, leveraging feedback to improve and adapt.  Check how the organization involves the community in its programs and decision-making processes. Community engagement often enhances program relevance and effectiveness.  Evaluate the organization’s relationships with stakeholders, including partners, beneficiaries, and other nonprofits. Strong partnerships and collaborations can indicate a well-run organization. 

Look for Accreditation and Awards 

Accreditation and awards from reputable organizations can serve as indicators of quality and credibility.  Check if the nonprofit is accredited by any recognized bodies, such as the Better Business Bureau (BBB) Wise Giving Alliance or the National Charities Information Bureau (NCIB).  Review any awards or recognition the nonprofit has received for its work and impact. These accolades can be a testament to the organization’s effectiveness and reputation. 

Determining whether a nonprofit organization is well-run involves a thorough evaluation of its mission, financial health, program effectiveness, governance, transparency, and community engagement. By carefully reviewing these aspects, you can gain confidence in the organization’s ability to achieve its goals and use resources effectively. Supporting a well-run nonprofit not only maximizes the impact of your contributions but also ensures that your involvement is aligned with your values and interests.