‘A good donor is an educated donor’

Choosing your charity wisely

Last updated on December 20th, 2021 at 02:36 pm

Perhaps you’ve been wanting to find a charity to support but don’t know where exactly to begin. There are countless causes in need of funding, and the Milwaukee area in particular is home to a plethora of nonprofits with laudable – if sometimes overlapping – missions. 

Ensuring your philanthropic dollars go to an organization that is doing important work and seeing positive outcomes begins with doing some homework, said Bryce Lord, associate director for the Helen Bader Institute for Nonprofit Management at the University of Wisconsin-Milwaukee. 

“A good donor is an educated donor,” Lord said. “(Donors) doing their homework is a priority to really understand not just where their money goes, but what it does, and have that sense of satisfaction and pride that it’s doing something positive, rather than just writing a check to get a tax benefit.” 

A good place to start is an organization’s financial information. Nonprofits with $50,000 and higher in revenue are required to file a tax document with the IRS called a 990, which discloses financial details such as revenues, expenses, assets and liabilities, along with governance information, such as the names of its officers, directors and highly compensated employees. 

Many organizations choose to post those documents directly on their website, and various watchdog organizations, such as Charity Navigator and Guidestar also make them easily accessible on their websites. Charity Navigator also scores nonprofits on a variety of financial health, transparency and accountability measures. 

Bryce Lord
Bryce Lord

While having access to that information is empowering for a new philanthropist, Lord offers some words of caution when scouring a nonprofit’s financial documents, particularly when it comes to executive compensation. 

For years in the nonprofit sector, overhead costs – expenses such as rent, employee salaries and other administrative functions – have come under scrutiny, with some watchdog groups arguing more money should be going directly to an organization’s mission. Those arguments gave rise to what is often referred to as the “Overhead Myth,” the idea – now dispelled by those in the industry – that a well-functioning nonprofit should expend only 10% of its annual budget toward overhead costs. 

“That created this whole idea that if a nonprofit pays its CEOs a lot of money, then they’re not doing good work,” Lord said. “It created (what’s called) the starvation cycle, where nonprofits would try to go as lean as possible and ended up putting themselves out of business because they simply couldn’t operate under that low of overhead.” 

While overhead costs vary from organization to organization, it’s generally agreed that they should account for at least 22% of overall costs in order for it to be run well. But nonprofit leaders continue to combat the myth. 

“The problem in my perspective is that damage has already been done,” Lord said.

A well-rounded evaluation of a nonprofit should include other metrics. Joseph Brooks, senior director for donor services at the Greater Milwaukee Foundation, said it’s important to identify who is leading the organization. 

“Look for evidence of a strong board of directors and governance,” Brooks said. “First of all, can you figure out who is on the board of directors and see if there’s anything you can glean from that.” 

Annual reports – also often housed on a nonprofit’s website – contain valuable information about an organization’s impact, he added. 

But there’s only so much that financial documents, reports and web searches can reveal. 

“If you feel like you’ve found an organization you’re interested in giving to, reach out to them,” Brooks said. “Don’t be shy. Reach out and ask some questions. If it’s an organization where there’s a tour opportunity, take a tour. Meet their leadership. Those are all reasonable things to think to do.” 

When it comes time to give, Lord recommends being mindful of where your dollars are going within the organization. Nonprofits will direct unspecified donations to wherever they are most needed, he said. General gifts are critical for organizations to sustain their programming and pay for items that may be less attractive for donors, like keeping the lights on. But donors that feel strongly about their money going to a particular initiative within the organization should specify that when making the gift. 

Donors should also familiarize themselves with the Donor Bill of Rights, a document created by the Association of Fundraising Professionals and endorsed by many organizations that enumerates what a donor is entitled to when giving their money, Lord noted. 

Donors may initially be drawn to larger, longstanding organizations or those that are getting press at a given moment, but Brooks and Lord say under-the-radar grassroots organizations shouldn’t be discounted.

“There’s a lot of incredible work being done by smaller organizations, and sometimes they may look a little different than big organizations with a marketing and fundraising team and fancy collateral and materials, but that doesn’t mean a smaller grassroots organization isn’t having a great impact as well,” Brooks said.

Ultimately, the question of whether to give to the well-established versus new nonprofit is a difficult one, Lord said.  

“I know of some new nonprofits doing amazing work and of some more established ones that have fallen into a bit of a rut,” he said.  “… They’re existing, but how much are they actually moving that needle? A long-term legacy organization certainly has that sustainability that you want to see, but I don’t necessarily think we should count out newer, more untested organizations.” 

Both as an accountability measure and to foster a greater connection to the organization, Brooks recommends volunteering or serving on the board as well. 

“That is truly the best way to know an organization, for better or for worse,” he said. 

Tips for evaluating nonprofits: 

  1. Visit watchdog group sites, such as Guidestar.org and CharityNavigator.org to learn more about the organization’s financial health. 
  2. Read the most recent annual report (often posted on an organization’s website) to learn more about its mission and impact. 
  3. Research who sits on the board of directors and who makes up the executive team. 
  4. Take a tour of the organization. 
  5. Volunteer with the organization.

This story is part of the 2022 BizTimes Media Giving Guide. See the entire publication here:

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Lauren Anderson is an associate editor and covers health care, nonprofits and education for BizTimes. Lauren previously reported on education for the Waukesha Freeman. She graduated from the University of Wisconsin-Madison, where she studied journalism.

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