Beyond the Gloss: Six Tools to Identify an Effective Charity
If you’re like many people, your mailbox is full of requests for donations of your time and wealth from these well-meaning charities. Many of them are good at telling moving stories about their work. But, how do you move beyond the gloss and identify those charities that are making the biggest impact, and moving the needle the farthest? Through our work with both donors and nonprofits, we’ve identified six key ingredients to look for when considering whether or not to donate to a charity.
1.) Vision Clarity and Focus
Look at the charity’s vision and mission statements. Each should be one sentence and share the following:
- Vision - provide a picture of how the agency wants their world/issue to be. It should be inspirational and provide a framework for the programs and services it provides.
- Mission - communicate the charity’s purpose, who it serves, and what it does.
Statements that are overly broad (i.e., they want to save the world and serve anyone that comes to their doors with any need) or too vague should raise red flags. Lack of clarity about why it exists will often trickle down to all levels of the organization.
2.) Service Alignment
Next, compare the organization’s programs to its vision and mission statements. Are they aligned? For example, if an agency claims in its vision and mission that they’re working to eradicate illiteracy in their local school district, but runs a number of low-income housing buildings, something is out of alignment. It could indicate some or extensive mission-creep. They may be chasing after donor dollars to keep their doors open.
Agency appeal letters and annual reports often tell you how many people were served and describe their services. What’s often missing is information on how those lives were changed or an issue was made better because of services provided by that agency. Good questions to ask to understand an agency’s impact include:
- What’s different in the lives of those you served? What’s different with the issue you are addressing?
- What were the nearer-term and longer-term benefits - to individuals, policies, or systems - from the programs, services, or platforms you delivered?
- What were the unintended outcomes (positive and negative)?
- To what extent can these changes be attributed to your organization?
4.) Invest in Themselves
Donors have different opinions on how much overhead/administrative expenses agencies should have, and how much they should pay their staff. Overhead expenses are necessary to help support a nonprofit’s mission and goals. It’s hard to provide programming if you have no money to pay for supplies, space, and insurance or if your staff isn’t trained in delivering services proven to work. Agencies, especially small ones, that tout low overhead rates could be starving themselves. Just as in the business world, agencies that invest in themselves through fair compensation, program evaluation, staff training, and good work environments are positioned for long-term success. 15-30% in overhead is perfectly acceptable.
An idea to consider - invest in an organization’s overhead. Help them purchase new computers or office furniture, pay their insurance premiums, or invest in new fundraising or evaluation software. These investments will pay off big on their impact.
Leadership is critically important. That’s no surprise. Things to look for that indicate strong leadership:
● Clear vision – Is leadership able to see what is possible for individuals, families and communities now and in the future? Are they future-oriented?
● Empower people – Does leadership enable others (staff, volunteers, and clients) to develop and use their leadership capacity?
● Collaboration and influence - Is the agency seen as a leader in its sector? Do they “play nice in the sandbox” with other agencies?
● Creativity and innovation - Does leadership seek out and incorporate best practices across the organization? Are they willing to innovate and stay with or
ahead of the industry curve?
Good ideas and big hearts are needed to start an organization, but they won’t sustain it. Look for two key signs of sustainability:
- Funding diversity - agency revenue typically includes a mixture of individual donations, foundation/corporate grants, program service fees, government grants, special events, and investment revenue. There should be a balance between all sources; no one source should dominate.
- Reserves - the agency should have a “rainy day” fund to cover unforeseen events. Experts say this should range from 25 - 75% of an agency’s annual operating budget, depending on the level of risk with its funding streams. For example, if a large portion of its budget comes from an outdoor fundraising walk, the agency should maintain higher reserves in case the walk is canceled due to bad weather.
These six tips can help you give with confidence, knowing that your giving will be most likely to have the impact you want. If you do not have the time or inclination to do the research, philanthropic advisory firms can be a great resource. They work collaboratively with you as well as your professional financial, legal, and tax advisors to help you achieve your philanthropic goals.
At American Endowment Foundation, helping donors achieve the charitable impact they desire is of utmost importance. Don’t hesitate to contact or call us at 1-888-440-4233 to discuss how AEF and philanthropic advisors can be of service in better giving.