Six Questions Donors Can Ask Before Donating to a Nonprofit

by | Dec 25, 2023 | Featured Nonprofits

This is the time of the year donors decide which organizations will receive their charitable gifts. Many give to the same nonprofits each year. Others switch it up. Some are in a quandary.

The head and heart are both involved. Each plays an important role.

The heart will tell you which causes you hold dear and the organizations that address those issues. Make your list and then check it twice to make sure you’ve included everything.

The head will serve a different purpose. To make sure your money is being used wisely and successfully, look for organizations that are doing an effective job of meeting their mission, achieving their goals and managing their finances.

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This may seem like an overly basic question, but just last year I discovered a nonprofit whose tax-exempt status had been revoked but they neglected to inform donors or the public. It’s always good to measure trustworthiness and legitimacy and to confirm that your donation will be tax deductible and used for its intended purpose. Don’t make false assumptions.

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 they 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. This could be a disingenuous presentation of their financials.

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 they have a strategic plan and are they following it?

The pandemic required most nonprofits to quickly pivot 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 in response to change. 

Which organizations do they 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 approach this important process in their own way.  

“This is the season of giving and there are so many ways people can give back to their community,” said Jackie Carrera, president & CEO of the Santa Barbara Foundation.

“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 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.”

Dennis Forster, CFP with Morgan Stanley  is an excellent example of an individual donor with a personal and practical approach to philanthropy. “It’s important to do what we can to enhance our communities and make them better places to live,” said Forster. “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, and including the organizations you treasure in your estate plans.”

You can create your own way of deciding which nonprofits to fund by using your heart and your head.

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.