How to Decide what Nonprofits to Invest In
Whether you make a million dollars a year or ten thousand, being generous is important. Unfortunately, money is a finite resource and that means you have to make choices with who you're generous with. There are so many amazing nonprofits, charities, and organizations out there. How do you decide which ones to support?
1. Evaluate the Cause
Start at the organization's website. Read the "About" page and review the programs they have. Find relevant information. Review their page on charitynavigator.org or guidestar.org. Answer these questions:
Do I believe in this cause?
How are they accomplishing their goal?
What events have they done?
Any positive news?
Any negative news?
If you believe in what this organization does and how they do it, locate their financials.
2. Evaluate the Financials
Take a look at their annual report. Review their statement of activities (Income Statement) & statement of financial position (Balance Sheet).
Answer these questions:
How much money do they bring in and through what channels (i.e. contributions, selling goods, paid events)?
How much do they spend?
How much is their net profit or loss? (Although they may be a nonprofit organization that doesn't mean they should run their organization that way.) Making a relatively small profit shows that they can manage money well, allowing themselves some wiggle room every year.
What is their program ratio? This is one of the most important things I look for. The program ratio is the percentage of expenses they spend on their actual cause. For example, if a nonprofit focused on homelessness spends 15% of their expenses on helping homelessness and 85% goes to administrative and fundraising costs, that's probably not a nonprofit I want to give money to. Sometimes a nonprofit may be in the start-up phase and have a lot more administrative costs or they might just be located in a higher cost area. However, it is generally a very helpful tool for analyzing nonprofits.
3. Evaluate their Supporter Involvement
This is crucial! You need to know how people are being helped because of your contributions. This is less of an accountability check on the organization and more of a heart check on you. As a supporter, I am happier and more likely to give when I am involved and know what’s going on.
Answer these questions:
How good are they at engaging their supporters?
Do they send out monthly newsletters?
Do they give opportunities for you to get involved/volunteer?
As a starting point, take a look at the Give it page. We showcase organizations that we believe in. We'll tell you about the organization, dive into some high-level analysis of their financials, and provide information on how to give. We are always looking to grow this list and would love to hear from you about nonprofits you support. Never forget- giving is the reason why we strive for financial freedom!
Mike Kern, CPA
Co-Founder