Six Questions Donors Can Ask Before Contributing to a Nonprofit

by | Jan 31, 2023 | Featured Nonprofits

Recruit Your Best Nonprofit BoardThis time of year, many donors begin contemplating their charitable giving. Some supporters give to their same favorite nonprofits every year. They are very clear about which organizations and causes resonate with their interests and experiences.

Others are unsure about which organizations they should contribute to. These donors often wonder how to decide which causes truly warrant their gifts. They want to find out which groups are doing an effective job of meeting their mission, achieving their goals, and managing their finances. Basically, most donors want to be sure that their money is being used wisely and successfully.

If you are uncertain about which nonprofits you want to give to, start by consulting your heart. Sitting down with pen and paper to examine your heart will reveal your basic areas of interest and the causes you hold dear.

Next, think about why you want to make a charitable donation. Some believe passionately in a particular cause and want to do all they can to make a difference. Others donate because giving is a deeply held family tradition. Some businesses make charitable donations because they know it will draw customers while benefiting their community. Still others want to do all they can to be part of the solution for a certain problem in their community. There are some who like seeing their name on a public listing of donors so they can set an example for others.

All reasons for giving are valid, so it’s best to identify exactly what motives drive your own giving engine.  Your reasons for giving will provide a foundation for your individual philanthropy plan. I invite you to spend some time asking yourself why you are giving. You might find some surprising answers; but identifying why you give will be the first step toward making the greatest impact and feeling the greatest reward.

After you have made a list of causes that interest you and identified your reasons for giving, look around our community and make a list of those nonprofits that are addressing the issues that interest you. The following six questions may help you craft your philanthropy decisions.

>>Is the organization a qualified nonprofit organization such as a 501(c)3?

This may seem like an overly basic question, but just this year I discovered a nonprofit whose status had been revoked but they neglected to tell donors or the public. It’s always good way to measure trustworthiness, legitimacy, and to confirm that your donation will be tax deductible and used for its intended purpose.

>>Who is responsible for leading the organization and who serves on the board of directors?

Leadership determines the values held by the organization, its credibility, and its vision for the future. You want to know who is responsible for financial decisions, who safeguards the process, and who oversees it at the highest level.

Find out if board members and senior staff make personal financial contributions to the nonprofit. This shows true alignment and commitment on the part of leadership. If diversity is important to you, you can evaluate the board makeup in terms of Diversity, Equity, Inclusion, and Justice. You can also check to see if the board membership includes representation from the constituents the organization serves.

>> What is the organization’s mission and how do they measure the impact of their operations?

It is good for you to understand the nonprofit’s programs and what difference they are making in the community and the lives of the people they serve. Data is valuable, but sometimes hard to collect. But anecdotal stories will help give you a sense of the organization’s effectiveness.

Find out how your dollars will make a difference and how the organization communicates with its donors about its accomplishments and needs.

>>What financial reporting and transparency do you provide?

This is an important question because it can help you determine the organization’s sustainability. You can review the finances of any nonprofit with a 501(c)3 tax exempt status by examining its 990 tax return at Pay special attention to Guidestar’s new product, Financial Scan which focuses on each organization’s impact and financial health. While in the past donors focused on the percentage of overhead, many now realize the more important indicator is social impact, or the result the organization is making in the community.

Another important consideration is whether the organization can sustain its programs over time. Their 990 will reveal whether they are able to grow their revenue at least at the rate of inflation, continue to invest in their programs, and maintain an appropriate reserve account for unexpected expenses. These are all indicators of economic sustainability and accountability that will give you a sense of their effectiveness and staying power.

Keep in mind that a nonprofit’s full cost of doing business includes: 1) direct costs of delivering programs; 2) indirect costs to support effective program delivery such as fundraising, marketing, management salaries, occupancy, and infrastructure; and 3) costs related to strengthening the balance sheet such as investments in facilities and other fixed assets and reduction of debt.

Don’t be misled by charities that claim unusually low overhead expenses. And don’t be surprised by high percentages spent on personnel costs. For example, it’s common for human service nonprofits to spend 52% to 75% of their management and general funds on personnel expenses since this is usually the vehicle for delivering their services.

>>Do you have a strategic plan and are you following it?

The pandemic required most nonprofits to quickly pivot in order to continue delivering services and remain financially viable. Therefore, many strategic plans had to change to be responsive to the new reality. Nevertheless, this question will help you determine how the nonprofit plans for the future and how nimble it is to change.

>>Which organizations do you collaborate with?

Nowadays, the mark of an effective nonprofit is how they work with other groups to accomplish their goals and serve their constituents. True collaboration can help reduce duplication of services and ensure the most effective use of your donation.

Each donor and each funding source approaches this important process in their own way.

Jackie Carrera, president & CEO of the Santa Barbara Foundation, explains, “This is the season of giving and there are so many ways people can give back to their community. The most important thing for donors is aligning the causes they support with their values, passions, and interests. When helping our donors select which nonprofits they want to support, we begin with a conversation about their values and goals because giving is a personal act.”

“Once we have identified their interest areas, our staff who have an in-depth understanding of the community’s challenges and the groups and individuals addressing them, work on curating a list of nonprofit organizations that align with the donor’s charitable goals. Matching nonprofits to donor interest is how we meet our mission to mobilize philanthropic capital for Santa Barbara County.”

Marybeth Carty, Executive Director of the Natalie Orfalea Foundation, explains, “At the Natalie Orfalea Foundation we are finding that evaluation encompasses a much bigger picture. While we are fundamentally interested in the impact our funding has on the proposed project or program we are supporting, we are equally focused on what that means to the organization as a whole. Remaining connected is important. We try to gain a sense of what’s next for the organization.”

Tina Fanucchi Frontado, Executive Director of St. Francis Foundation of Santa Barbara, believes that “seeing the whole picture of an organization takes diving deep–evaluating financials to those served, credentials of staff, commitments from the board of directors, strategic plans, and demand for services are all cornerstones of responsible giving. “

Dennis Forster is an excellent example of an individual donor with a personal and practical approach to philanthropy. Forster, Certified Financial Planner and Morgan Stanley Advisor, says, “It’s important to each of us to do what we can to enhance our communities and make them better places to live.  I make regular contributions to the organizations that make Santa Barbara even more spectacular.  I believe improving health care is one of the best ways to enhance people’s lives, so I’m a regular contributor.  Education is also a high priority as are organizations that assist the children, families, and underserved populations.  Annual contributions are essential, as are contributing volunteer time to your most favorite, and including the organizations you treasure in your estate plans.”

You can create your own way of deciding which nonprofits you will fund.

I invite you to include some or all of this information when you evaluate nonprofits that align with your personal beliefs and interests. Once you compile your list of recipients, please be as generous as possible because our nonprofits need your support more than ever.