The race to the finish is about to end for the calendar year if your organization only focuses on December for the largest segment of its donors. Charitable statistics will be evaluated on the calendar year as well to show the winners and losers. A clear effect of recession was the decreased amount of mailing solicitations and that cutting of development units of organizations.

I wish to remind organizations that without a 12 month plan for raising money the organization has left donations more to chance than strategic.

pic from Ben Heine

Regardless of size, every non-profit organization needs the ability to do some basic administrative functions, such as human resources, accounting, purchasing, and auditing.  Larger non-profit organizations (defined by me as having greater than $3.5 million in revenue) are able to achieve economies of scale in many of these areas, allowing them to spend a smaller percentage of their overall income on administration and more on direct care.  Non-profits generally begin to gain this benefit by expanding to offer a wider cross section of services across multiple communities.  For small non-profit organizations, they are unable to benefit from such economies of scale.  Rather, they tend to excel in treating a small, focused segment of one community very intimately for their cause.  Simply put, they subscribe to the theory of quality over quantity to the cause.  Smaller nonprofits also have a tendency to be more passionate or driven by faith vision to donate their time effort and own funds to the cause.  Thereby, every donation brings them to want to do even more with what donors give.

Nonprofits that have too much money do not always make wise choices.

pic by veggie trader 

Most non-profits depend on government funds to support their operations and pay for their overhead.  Government organizations which provide the funding for these non-profits are constantly struggling with the need to purchase services in the most efficient, cost effective manner possible.  Often larger non-profits are able to offer the efficiency and cost effectiveness the government is looking for and at times government has defaulted to the larger organizations.  However, there is a level of government that realizes that as a donor to a cause that looking for more than just efficiency of over head is important to reach the intended cause.  They are also concerned about quality of care issues and being able to fairly reach the intended communities.  Small non-profits are typically focused on a small, specific segment of the population, which naturally lends itself to a high quality of care or reaching more diverse communities.

The nature of giving by a donor is personal and their reasoning to give to a cause need not be scientific.  However, the nonprofit should be expected to quantify its intended approach with goals, objectives and measures for the intended cause.  A nonprofit being able to clearly show how it intends to be held accountable goes a long way in the providing assurances in philanthropic giving by donors to continue to support the nonprofit.  If nonprofits do not post how they spend their money or funnel it to another organization in lump sums without designating the funds, that is not a accountable nonprofit to give to. 

pic by radio active girl

The Internal Revenue Services (IRS) reason for issuing nonprofits a tax exempt status is with the purpose that an organization is going to raise money from donors whether it be from individuals, corporate, a philanthropy initiative, in-kind contributions, or volunteers to offset its cost of providing it purposes.  The IRS does not define whether the donation comes from individuals, donors or from corporate philanthropy giving.  The act of donating and the manner under which it happens is up to the nonprofit.  The nonprofit must however, follow any state guideline for the solicitation of funds from donors.

There have been many different opinions on what percent a nonprofit should raise from donors.  There is even some debate of whether government funds should be considered part of that offset, which it currently is to be considered a public charity.   However, there are several key examples that provide a guideline.  The IRS mandates that an organization spend a minimum of 5% of it’s funds each year.  The federal or state government has required a 10%-25% match or limited what the money can be spent on.

The reason largely lies in people’s understanding of the description of a non-profit.  While non-profit companies are not in the business to profit from their activities, they are also not called “for-loss” organizations either. There is wide expectation of the need and understand that non-profit companies are under the same pressures as for-profit companies to operate as efficiently as possible to avoid loss in a down economy.  A nonprofit being dependent on the philanthropic nature of corporations, individual donors and foundation does not mean that donations (capital) are to be used inefficiently.

The great majority of non-profit organizations are started with the lofty goal of improving or enhancing the lives of a specifically targeted group in their community, with services ranging from child day care for low income mothers to group homes for mentally disabled individuals to saving the environment.  The leadership of the founding individuals of a nonprofit are the first donors to the nonprofit, volunteers and expected members of the philanthropic nature expected to be reached by the nonprofit.  These non-profits serve a much-needed function around the state by picking up where government programs often fall short.  Many of these organizations are small, serving a very specific segment of communities, allowing them the opportunity to truly get to know who their clients are, what the communities needs are and how best to serve them.  Extraordinary people with an extra-ordinary desire to improve our communities run these non-profits, and who often dedicate and donating most much of their free time their whole lives to helping others or a cause.

pic by Beo Nquyen

For the dedicated people running small non-profit organizations, the rewards can be endless.  Unfortunately, they also face many of the problems as other small business owners, namely where to find donors (money) for start-up,  growth, obtaining health benefits for their employees, finding the right bank to fit their nonprofit needs, and drafting a plan that will help them achieve their ultimate visions of the nonprofit.

The nonprofit industry is primarily financed through two main sources, government agencies and private sector philanthropy.  Both sources of these donations are heavily tied to the health of the economy, with the private donor sector being more closely tied to the performance of investment securities.  With both the economy and the major aggregate indexes (equity and fixed income) having suffered declines in the past few years, nonprofit funding has leveled off and the competition for funds among non-profits has become much more fierce.  Both government agencies and philanthropic organizations are becoming more selective in distributing funds, looking for nonprofit organizations providing a more effective use of its funds. It is a fallacy to think that bigger nonprofits are better at using the donations.  A philanthropic program for giving to make the biggest impact should think about how the focus of the donation will create an equable impact on the intended geographic area.

Let’s get to some facts on nonprofits as you consider your year end donating.

The number of nonprofit organizations reported by the National Center for Charitable Statistics as of October 2009 was 1,569,572 that reported to the IRS.  Since 2006 that is an increase of 91,378 nonprofits. This does not include the 175,000 religious congregations who choose not to report as allowed by law.

Largely overlooked by many in the business arena, the non-profit world is a critical sector of our economy.  The employment of hundred’s of thousands individuals provides for the economic wealth of many communities and the creation of many for-profit companies.  As a reader and possible donor I remind you that most colleges, universities, and hospitals are nonprofits.  From a pure economic view, the education and health care field of nonprofits provide for the greatest measurable opportunity to see an outcome which resulted from the donation.

In 2007, public charities reported over $1.4 trillion in total revenues, nearly $1.3 trillion in total expenses and nearly $2.6 trillion in total assets in 2007. (Source: The Urban Institute, National Center for Charitable Statistics, Core Files 2007)

Volunteering and charitable giving even with a huge influx of funding from the government, non-profits are still prone to struggle in down economic times, since the other part of their funding, donations, often take a turn for the worse.  In addition, while there are many companies created in the for-profit arena to provide help to organizations in becoming more efficient in this business climate, few focus on the non-profit world.   

Even for those who realize and understand the obstacles of starting a small business, few understand the competitive nature of the non-profit industry.  There is a strong movement among social service advocates and the people who utilize social services to have more choice in selecting from whom services are provided and what different types of services are offered.  This has spurred growth in the industry, not just in the number of new nonprofits established each year, but also the amount of money allocated by the government.  This new influx of money has only added to the pre-existing tension between large and small non-profits. The new, smaller non-profits are able to change the way they operate quickly to meeting the changing client base while the larger non-profits are able to expand into new areas and service lines.

While efficiency of the donation may be expected to be able to be accomplished on a larger scale many nonprofits are staying to their mission and finding qualified people willing to work for nonprofits at a wage they can afford. 

pic by Daileypic

Nonprofits with high salaries are ruining it for everyone.  I have as a personal rule never to give to any nonprofit money if they pay any one individual on their management staff more than $400,000.  I also look to see how much in revenues the organization receives each year to see if that number should be smaller.  My decision is based on four facts.  In 2009 I estimated that the living wage for a family of four is $35,000 plus a year; the average salary for the work force according to the US Department of Labor is $38, 348; no nonprofit should expend more than their 25% of the budget on non service directed functions; and finally no one in the nonprofit community receive a salary more than the President of the United States.

A nonprofit exists to do charitable work.  Any employee who must make a salary that represents only 1 percent of the work force is not doing charity work.  They are investing in their future on the back of the nonprofit they work for.  This takes away precious dollars from the nonprofits mission.

Further, I would advocate that the IRS reconsidered a nonprofits charitable status when salaries have exceeded the norm of nonprofits.

There are three Boston nonprofits that I challenge their boards to reconsider how they compensation their Executives.

• The Boston Symphony Orchestra Managing Director received a salary of $476,100 and benefits worth $78,110.

• The Museum of Fine Arts Director received $591,892 in salary and $128,029 in benefits.

• Suffolk University pays it President over a $1,000,0000 plus benefits.

Nonprofits with extremely high salaries should dig deep and assess what the organization could have used the money on that expands their impact on the community it serves.  Now that is a better return.

pic by magnusmangomango’s

Whether or not you agree with Greenpeace tactics, they are clear; raise the attention of their mission and they have created a solid funding base from individuals. It is fantastic that they are able to charge individuals to cover their expenses to volunteer on some of their missions. The result driven organization gives its supporters the opportunity to see, feel and hear the scope of their mission. The passion throughout the organization of belief to its mission and much of the funds are spent on direct service to that mission have really set the organization apart from other worldwide organizations. Most large worldwide organizations spend millions in overhead to coordinate their organization.

Many of the individuals who work for Greenpeace only ask for what is needed to survive to support the mission. In case your looking to support their efforts here is a link. http://www.greenpeace.org/usa/

I promote Greenpeace as a great case study of how to balance a mission and meet the needs of the support base wanting to be an active participant in its mission.

Space junk may just be the new initiative to clean up and change behavior that Greenpeace takes on.

Some nonprofits think presentation is their road to success to getting donors.  I call it window dressing and a way to create disappointment.    No business is perfect but it certainly can promote its intent and successes to make it a good candidate for a donor’s support.

Staying with the facts is the best tool for presenting and being consistent.  It is when a nonprofit strays away from a baseline of fact that the reasoning for supporting the mission of the nonprofit cause decreases.

Have history on the organization’s web site that is no more than 3 months old.  Otherwise the look of abandonment turns off the donor reviewing the web site.

pic by vorian1965

There are a number of organizations that have been promoting themselves as the best source to obtain ratings for charities.    The Better Business Bureau, Charity Navigator,  and American Institute of Philanthropy are the most popular.

However, they are all misleading since they only report on a very small fraction of nonprofits when compared to the 1.6 million plus nonprofits that exist.

I would promote that anyone interested in learning about a nonprofit first start with Guidestar for basic information and to obtain the 990 of the nonprofits that interest you.  It is the best way to truly know the financials of a nonprofit.   Check out the web site of the nonprofit.  Send an email with questions to the nonprofit.

Nonprofits have to realize the importance of promoting their organization through the Internet.  Utilize the fact that there are many sources of information one reports to government agencies that are in the public domain.   Do not let outside organizations take control of your story.   Link them to the stories you tell all of the time and the reports you have created on the results.

Nonprofits should unite to demand that ranking organizations conduct their rankings on nonprofits by industry or those with similar missions.

Promoting large organizations does not mean effective use of the mighty dollar.  However, it is a means to hide high paying salaries.  The highest paying salary information listed on the 990 ranking organizations seem to have given a back seat to identifying the use of funds.  If you one looks at these numbers it will give one a better sense of whether it is about mission or recruiting and paying top dollar regardless of results.