Five questions every nonprofit donor should ask
Donors wishing to contribute their time and treasure to nonprofits face a vast array of choices. After all, there are more than 1.6 million nonprofit organizations in the United States that would be delighted to accept their resources. The challenge for donors becomes how to make the right match.
In order to make the best choices and enhance their experiences, philanthropists need to do some research, either on their own or with the help of a professional adviser. Nonprofits need to make sure that the answers to donors’ questions are complete and easily accessible. These questions include:
WHAT IS THE NONPROFIT’S PURPOSE?
Donors seek a clear picture of an organization’s mission and work. The nonprofit must discuss its origins, historical growth and achievements, and goals. It needs to explain how donations will further these goals, as well as describe the ability, experience and dedication of its professional staff.
Donors want to know how many people sit on an entity’s board, who they are and where they come from. Also, they need to know that the nonprofit’s 501(c)(3) status is approved and current.
IS THE NONPROFIT’S FINANCIAL PICTURE TRANSPARENT?
There must be accurate reporting on how funds are spent. Timely and easy access to annual reports, audited financials and IRS 990 filings help potential donors and their advisers understand the financial health and priorities of the organization. Such information should be readily available on the organization’s website.
Too many donors still criticize “overhead” expense such as salaries and rent. While it is important to be aware of these costs, they are less important than the expenses incurred in the delivery of programs or services and are an essential component of doing so. Nonprofits are businesses with a bottom line measured by a social outcome; their employees should be compensated competitively.
WHAT OUTCOMES RESULT FROM THE NONPROFIT’S WORK?
Nonprofit organizations need to accurately measure and honestly describe the impact their work is having on their mission-related issues. Too frequently, nonprofits report only on their activities or their “outputs,” such as how many people they “touched” with their programs. Instead, they should focus on the outcomes they achieved and the changes that resulted. Donors must ask, “So, what difference are you making?”
Charting Impact, a collaboration of the Better Business Bureau Wise Giving Alliance, Guidestar USA and Independent Sector, developed five key questions nonprofits can use to assess their own impact:
• What is your organization aiming to accomplish?
• What are your strategies for making this happen?
• What are your organization’s capabilities for doing this?
• How will your organization know if you are making progress?
• What have and haven’t you accomplished so far?
IS THE NONPROFIT INTERESTED IN EXPLORING PROGRAMRELATED INVESTMENTS IN ADDITION TO GRANTS?
Donors and nonprofits alike are increasingly exploring the use of Program-Related Investments - in addition to grants - to achieve their shared missions. On both sides of the philanthropic coin, the benefits of utilizing this important philanthropic tool are being recognized and implemented.
DOES THE NONPROFIT PROVIDE TIMELY UPDATES ON SUCCESSES AND CHALLENGES?
Donors often get frustrated when they fail to receive regular updates on a charity’s progress as well as its challenges confronted in meeting its goals. Donors want to know what is working, what is not working and how their continuing support can help bridge this gap.
Philanthropy is best defined by strategic partnership principles between donors and nonprofit organizations. Today, philanthropy is trending to partnerships, collective action, complex investments, impact analysis, transparency - and more. By asking the right questions, donors have a better chance of achieving their own philanthropic objectives and helping nonprofits achieve theirs.