Understanding nonprofits: Following the money and measuring success

Have you ever wondered how your favorite local charity spends its money? Or maybe you're thinking about donating to a new organization but want to make sure they're using funds wisely. Researching nonprofits can seem daunting, but with a few simple steps, anyone can become a savvy donor or informed community member.

Nonprofits get their money from various sources, including individual donations, grants, corporate sponsorships, and sometimes government contracts. The first place to look for this information is the nonprofit's own website. Many organizations proudly display their annual reports, which often include their funding sources. They know donors need confidence that their money won't be squandered or secreted away.

If you can't find this information on their website, don't be afraid to ask. Reputable nonprofits should be happy to share this information with potential donors or interested community members. Just call them up and let them know what you are looking for, and why. You can also check websites like GuideStar or Charity Navigator, which compile financial information on thousands of nonprofits.

How about nonprofits spending their money? Nonprofits typically have two major categories of expenses: program expenses and overhead costs. Program expenses are the money spent directly on the organization's mission. For example, if it's a food bank, this would include the cost of purchasing and distributing food. Overhead costs cover things like salaries, rent, utilities, and administrative expenses.

To find this information, look for the nonprofit's Form 990. This is a tax document that most tax-exempt organizations must file with the IRS each year. It's a goldmine of financial information, including detailed breakdowns of revenue and expenses. You can often find these forms on the nonprofit's website or through services like GuideStar.

When reviewing a nonprofit's expenses, it's important to remember that overhead isn't always bad. However, most donors prefer to see most of the funds going towards program expenses. A common rule of thumb is the "65 percent rule" which is that at least 65 percent of a nonprofit's expenses should go towards program costs. Some organizations do much better than others on how much is spent toward program costs.

Measuring success can be trickier than looking at financial data because success isn't always easily quantifiable. However, there are still ways to gauge a nonprofit's effectiveness. Start by looking at the organization's stated goals and mission. Then, look for evidence that they're making progress towards these goals.

This could come as statistics (like the number of people served or trees planted), testimonials from those who've benefited from their services, or third-party evaluations. Some of these will be in annual reports, media coverage, or from your discussions with them.

Many nonprofits publish annual impact reports that highlight their accomplishments. Remember to look at them critically. It's easy to cherry-pick positive statistics, so try to look for consistent progress over time.

Another way to assess a nonprofit's success is to look for external recognition. Has the organization won any awards or received positive press coverage? Are they well-regarded by experts in their field?

It's also worth checking if the nonprofit has undergone any external audits or evaluations. Some organizations voluntarily take part in these to show their commitment to transparency and effectiveness. An organization that accepts over a certain threshold in grants may have requirements for audits.

Don't forget to consider the context in which the nonprofit operates. An organization working in a challenging environment or addressing a complex issue might have different metrics for success than one working in more favorable conditions.

By taking the time to research nonprofits, you can make better decisions about where to volunteer your time, which causes to support, and how to advocate for positive change in your community. Nonprofits play a crucial role in addressing societal needs and driving social change. By understanding how they operate and assessing their effectiveness, we can all play a part in ensuring these organizations are as impactful as possible.

The next time you're considering supporting a nonprofit, take a little time to do your research. Your community will be better for it.

Christian M. Hartley is a 40-year Alaskan resident with over 25 years of public safety experience and public service. He runs a freelance business, Big Lake Writer, from home in Big Lake that he shares with his wife of 19 years and their three teenage sons.