Ask Questions First, Donate Later

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“Ask not what I can do for your nonprofit if you’re not ready to be asked what your nonprofit can do for me.” – Cory Watson

I was on my way back to the office from lunch today when I was hailed by a tall, nicely dressed man holding a colorful folder. I usually politely nod and walk right by these individuals, but I decided today to hear his spiel, as the cover of the folder prominently featured some happy-looking children. Who doesn’t like happy children? It turns out this individual was a representative from a lesser-known international relief organization and was trying to get people signed up as sponsors for impoverished children. His pitch was pretty good, and I’m sure he’s been the source of a lot of admirable work being done around the world. However, I’m not sure he got quite what he was expecting with me.

The problem that Mr. Smith (that’s what we’ll call him) ran into today is that he decided to chat up an aspiring nonprofit scholar whose focus is on US-based international development organizations. If he had asked me for anything more than my name, he might have found this out. However, he was so focused on selling his organization’s services that he skipped this crucial step of learning about me. This caused his entire pitch to be mis-directed. He was interested in me becoming a child sponsor. I have no interest in becoming a long-term sponsor through any other organization than World Vision. However, I would have definitely considered making a small one-time donation to his organization had he even mentioned the possibility. However, sadly, he did not suggest that possibility. For that and other reasons, he missed a potential sale.

It may surprise you to think about a charitable organization “selling a product” to you. It may even bother you to think of a child sponsorship as a “product.” However, having studied charitable organizations intensely for two years, interned with them, and worked for them, I’m convinced that they are just as much sales-based organizations as for-profits. The main difference is that the “products” charitable organizations offer usually consist of one person paying for them in order that another might receive the benefit of them. I pay for medicine, and it is consumed by a child in Tanzania. I pay for a social worker, and said social worker counsels a child in the foster care system. What do I get out of it? Well, some might say nothing really…except the knowledge that I have helped another individual (or an animal, the environment, the arts, etc).  So…I give money, I help, I feel good, right? If only it were that simple!

The problem is that I look at donating to a charity like investing. I invest in a stock because I trust that the company can get better returns on my money than I can. I have studied the company and feel that it has a competitive business model, sufficient resources, and a history of success. Therefore, I can invest $100 in a share of their stock instead of investing $100,000 to try to start my own company. In the same way, I donate to World Vision, Care, or a similar organization because I believe that organization can make more of a positive impact in an impoverished Mosotho child’s life if I give them $1,020 than if I paid $1,000 to get to Lesotho to hand $20 to said Mesotho child (Mesotho is what people in Lesotho refer to themselves as). Those organizations are better suited to do that work than I am, and they do it extremely efficiently.

So, should I support World Vision, Care, or this other organization. Well, when I donate to a nonprofit, I believe I’m really donating to an idea as much as to an organization or an individual. Every well-run nonprofit organization has a vision statement and a mission statement. The vision is the organization’s opinion of an ideal situation. The mission is the set of practices that will get them there. By supporting that organization, I’m joining with them in their mission in an effort to see their vision come to pass. However, even that is an oversimplified view, as it is not so much what a company/charity says as what it does that matters. The vision of a hypothetical organization might be “All women everywhere living empowered lives.” and the mission might be “Creating programs that help empower women through the building of character and life skills.” However, if all the organization’s resources go towards planning beauty pageants…one has to ponder if the organization is really moving towards or away from its vision and mission. It is this combination of vision, mission, and actions that one supports when one donates to a charity.

So, now we turn back to my conversation on the street. Upon finishing his pitch, Mr. Smith pulled out photos of three children I could sponsor. Perhaps he expected me to choose one and fill out the paperwork. Perhaps he expected me to decline the opportunity and walk away. However, I’m almost positive he didn’t expect me to start asking him very pointed questions about the organization. I went easy on the guy, as he seemed really nice. However, had I wanted to go all out, here’s a list of what I would have asked him. You can use this as a guide to help you in making your own charitable investment decisions.

First off, some quick filter-style questions to determine if the organization is legitimate and how large it is.

  • Is the organization a registered 501(c)3 not-for-profit organization to whom donations are tax deductible?
  • What are the organization’s vision and mission?
  • How long has the organization been in existence?
  • How many clients did it serve last year?
  • Where is it headquartered?
  • How many employees does it have?
  • Who is the current CEO/Executive Director and what is his/her background?
  • Is the organization affiliated with a specific religion, people group, or other entity?

Next come the financials. These serve as great comparison points that can help you judge between organizations and can also help you determine if an organization will survive. If 85% of the organization’s income stems from a single grant that expires in 6 months…you might reconsider investing.

  • What was the organization’s income in the previous year?
  • How much of that income went to programs and how much was overhead (administrative and fundraising costs)?
  • Did the overhead percentage increase or decrease in the past year? 5 years?
  • What percentage of the organization’s income comes from grants, gifts in kind, interest on investments, and individual donations?
  • Does the organization carry debt? If so, what are its debt to equity ratio and debt to income ratio?
  • How much does the CEO/Executive Director earn annually?

After financials come program-specific details. This is where having an understanding of the specific “industry” the organization is in comes in handy. As the organization in question did international development, these questions are tailored to that industry.

  • How many countries does the organization have a presence in?
  • Does the organization have international regional offices, or is all administration handled inside the US?
  • Is the objective of the organization to build into a community to help future children, or to pull children and their families out of the community and place them elsewhere?
  • If the organization is religiously affiliated, how does that play into decision-making and service delivery?
  • Are the international staff hired from the country/region they serve in (natives), or are they mostly from the US?
  • How long do projects in a specific area last? Do you have a withdrawal strategy for pulling out of a specific area?

In the case of Mr. Smith, I opted to ask about the overhead percentage first, as it is one of the biggest deciding factors for me. It turned out that Mr. Smith’s organization has a 23% overhead rate. As there are organizations out there that do identical work with rates of 14% (World Vision) or even 9% (Care), I told him I was a supporter of a similar organization and couldn’t take on a child sponsorship at this time. If I’m going to invest my money to buy aid for another individual, I’d prefer that they see at least 80% of what I give. For me, I prefer World Vision, even given the higher overhead rate. I believe in their mission and vision and feel that they are accomplishing it well. I would strongly encourage you to consider supporting the work they do helping children around the world.

For anyone considering supporting a nonprofit, always remember this: whether you are standing on the street with a rep, watching a heart-wrenching commercial, reading a brochure, or staring at a banner ad, you are the investor here…and you are in control. Ask every question you can think of about the organization. If two organizations seem identical, but one puts 90% of income towards programs while the other puts only 70%, you might want to ask where that additional 20% goes. If one pays its ED $350,000 while another pays only $70,000, it might be worth asking about. If the organization isn’t 501(c)3 certified, it’s definitely worth asking about. While this may seem like a lot of work, most of it can be accomplished via a single phone call to the organization, a trip to their website, or through other services such as Guidestar.

With just a little work, your support for charitable organizations can make a huge difference in the world around you. I hope this is a helpful resource. Happy investing!