You're sitting at your kitchen table sorting through several — or dozens — of letters of request or even full proposals for funding. They all fit your focus area. They all seem like good organizations. But you can't fund them all. How do you make a good decision?
In a previous entry I noted that crafting a set of decision-making criteria would enable you to make better, more effective choices. Once you've done that, you can read each appeal with those criteria in mind. You value people learning to help themselves? Then look for an organization offering proven training programs with clear pathways out of poverty. You want to help kids be successful in school and in college? Consider how long an organization tracks its clients and how it determines success. Make sure that the students aren't sent off to college only with great fanfare but also with on-going support. You believe in evidence-based activities? Search for success indicators that indicate the organization uses evidence-based practices. You get the idea.
Financial statements: There are other things to look for to help you identify the strong from the teetering nonprofit. Many people think that strong necessarily means lean and mean. That's not always the case. Running a mission-driven organization by leaning too heavily on the backs of its employees doesn't mean it's better than an organization that actually pays its workers a living wage. If you want the nonprofits you support to help people out of poverty, don't insist that its workers — including its executive director — be eligible for food stamps.
But there are questions that can be answered by reviewing financial statements. Does the nonprofit have funds in reserve at the end of the year? A six month operating reserve is a wonderful thing for any business or nonprofit. Besides allowing the organization to operate without constantly worrying about cash flow, a reserve also lets nonprofits jump at opportunities and be nimble in reaction to events that affect their work.
Is the nonprofit's source of income somewhat varied? If they rely largely on one large grant, what happens if that funder — government or private — decides differently? (You may, of course, determine that you want to help the nonprofit diversify its funding sources and provide them a grant to do so. You could provide a matching grant for new sources of support or funds to hire a development director or consultant to help them update their strategic plan.)
Besides looking at the funding, reserve balance and staffing (do remember that most nonprofits are not manufacturing widgets, so their biggest cost will almost always be staffing), scan for reasonableness. Does it seem like they can actually deliver a program on that program's budget? If you have financial statements that include previous years' numbers, are you seeing a stable picture or one of growth?
A plan: Every nonprofit should have a plan to guide its work. It can be a strategic plan (as long as it operationalizes its vision, goals and objectives), a work plan, or an operations plan. But it needs to be something that isn't just sitting on a shelf but is used as a map to guide and a place to record course corrections. Ask for a copy. If they don't have one? That tells you something.
Plays well with others: If you see no evidence of a nonprofit collaborating with others in the same or related fields, ask why. There may not be many others to work with in smaller communities. But in large ones, overlapping missions can be harmful toward achieving success, unless everyone on the playground knows who else is there and what their particular strength and niche are. Coalitions provide stronger voices and coordinated services help more people.
Leadership: What do you think of the Executive Director? How long have they been in the position? Sadly, the average tenure of a nonprofit Executive Director is only 3 years. If you've worked in any business or organization, you know that a strong leader is imperative, and such turnover a great challenge to every nonprofit. Many come to their roles without formal training but a passion for the work. They play multiple roles within the organization and are always overworked. Does something about the ED grab you? Do you get excited speaking with them? Do they seem to have a firm grasp on the obstacles facing their organization? There are donors — and business investors — who place their bet on the person rather than the organization, and if they pick wisely, are not disappointed. In addition, look over the board list. Do you know or know of any of them? Their leadership is equally important to the CEO's.
Evaluation: Hook back around to the plan. How does the nonprofit know they've implemented the plan successfully? Do they have at least some measurable goals they track? Do they make mid-course corrections because of what they learn? Do they talk to the people they serve? I suggest that you ask three questions of a nonprofit you are considering re-funding:
Of course there are many other things you can look for to identify strong nonprofit organizations. And the larger the gift, the more due diligence you may wish to perform. (Conversely, the smaller the gift, the less you should require of the nonprofit.)
But if you find evidence of a steady, if not strong financial status, a plan of action, a collaborative tendency, a willingness to evaluate and learn from mistakes, and strong leadership, you would do well to support that nonprofit and to aid it in its mission.