5 Tips for Evaluating Health and Disability Charities
Tax time forces many of us to look at where we spend our money. When I was working, I was able to take care of my family and financially support a few non-profit organizations with small cash donations. I gave a little money to a lot of organizations, but I did so without really knowing how the organization was using my money. For many years my benchmark was simple; if an organization asked, and if I believed they were doing good things, I made a donation at whatever level I could.
My finances changed dramatically two years ago when my battle with complex regional pain syndrome and cluster headaches forced me to stop working. I’ve realized how important it is for me to learn about the organizations I choose to support with my limited time and money. Simply put, I need to think like an investor, not just a donor. A donor gives because they are asked, but an investor gives because they know and care about the organization’s long-term future. As an investor, I have a duty to learn all I can about what the organization does, who is in charge, where it gets its money, and how they spend it.
It is not always easy to find reliable information about an organization, but if you know where to look, a short online search can give you a wealth of information. Here are some tips that investors in non-profit organizations may want to explore:
• Search their website. Consider an organization’s website as the front door to its operations and core mission. A disease-related organization’s mission, for example, might be to provide support for those affected, education about the disease, and research to find a cure. An organization must be accountable and transparent to its investors and their website should provide an annual report of its accomplishments from the previous year and goals for the next. You will need to review several annual reports to evaluate if the organization is making progress on the previous year’s goals.
• Download their tax returns. Examine the organization’s tax returns to learn about how they operate, where they get their funding, and what proportion of their money is spent on programs to help people versus administration and fundraising. There are a few exceptions, but most non-profit organizations’ tax returns are public information, meaning anyone can inspect them. I find ProPublica to be the easiest place to find these documents. When you compare two or three years of the organization’s tax returns, you can get a sense of the organization’s financial stability over time.
• Identify their funding sources. In order for an organization to remain financially healthy, it must seek funding from different types of revenue streams, such as grants and corporate and individual donations. For example, an organization may accept donations from pharmaceutical companies or charge membership dues or fees to attend their events. Investors need to know where the organization gets its money. If the organization is growing and thriving, you will see a steady increase in the money they bring in (revenue), the money they spend (expenses) will remain proportional to their revenue, and their bottom line (net assets) will remain stable from year to year.
• Learn where they are spending their money. There are well-established benchmarks for how much of an organization’s budget should be spent on direct programming versus administration and fundraising. Organizations should be spending at least 75 percent of their revenue on programs that benefit their members and less than 25 percent of their revenue on overhead. As a reference, Charity Navigator publishes an annual report of CEO pay that finds mid-sized organization pay their CEO’s in the low $100 thousand. Regarding fundraising, the Better Business Bureau’s accountability standards for indicate fundraising expenses should not exceed $.10 to $.35 per dollar raised. As an investor, we want to see these figures as low as possible and ensure they are aligned with organizations of similar size and type.
• Engage with the organization at all levels. If an organization is worthy of receiving your financial support, it should also be worthy of receiving your time and talent. Volunteering for the organization is an important way for you to increase the value of your investment. Non-profit organizations depend on volunteers to help them run programs, raise funds, and promote awareness. When you find the right organization, consider pledging a monthly, rather than a one-time annual donation. Large foundations who offer grants to organizations want to see repeat donations because it is an indication of a healthy, growing organization that is capable of using their grant money effectively. Staying involved with an organization helps ensure your investment is used to its fullest potential.
As a person with a disability, I have too little time and too little money to waste on an organization that is not using its resources wisely. In the past, I made donations to organizations because they asked, and because I believed they were doing good things. In the future, I am determined to raise the benchmark for who I support. As investors, we are in a unique position to help ourselves by helping others. Each of us have the responsibility to learn everything we can about an organization and to use our power as investors to make positive changes within an organization. It will take a bit of effort, but once you have found an organization that is a good fit for you, please share your research and experiences with others in your community. Together, we can make our money work for you, me, and us.
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Thinkstock photo by Echo EVG.