By: Abbey L. Henderson CFP® RLP® CPCC® CEO, Wealth Advisor, & Coach –
It’s the season of giving, and as a financial advisor, I appreciate that my clients want to take a thoughtful approach to their philanthropy. It’s important to them for the money they give to make a real difference. Since charitable giving is part of their financial plan, they often ask me what to look for when deciding which charities to support. How should you go about evaluating your options so you feel good about your contribution?
Let’s consider five ways you can evaluate organizations and plan your giving to charity.
Does the mission resonate with you? Is it in line with your values?
Charitable giving is a very personal decision. It should be something that resonates with you. While it is a donation of money, it is also an investment in a cause, and you should always protect your investments.
Take some time to evaluate the mission of the prospective charity and see if it aligns with your personal values. You may want to involve your family or your business in the decision-making process. Here at Abaris, we have a charitable board that gets together to determine which non-profits we want to support.
What are the charity’s outcomes and trends over time?
Having well-aligned core values are important, but you also want to make sure that the charity is able to deliver on their mission. Get the details. How many people have they actually been able to help?
Depending on the age of the charity, look for an established trend. Some charities might start out strong, only to taper off. While some decline in numbers might be natural trends or influences beyond their control, there should be reasons behind any big shifts.
What do their financial records show?
As a prospective supporter of a charity, you want to be familiar with their financial records. In the United States, charities are required to file an IRS Form 990, which provides a breakdown of their financials for tax-exemption qualifications. You can look up records on file with the IRS for the past couple of years, using the Tax Exempt Organization Search. Exemption status alone is not enough.
Once you have these records, there are four primary elements you will want to consider:
Are they current?
Financial reports and records should be updated regularly, and the Form 990 is filed annually, so you should be able to see full and current records.
Are they at least breaking even?
You want your investment to pay off long-term. If a charity is struggling to maintain its own finances, it may not be able to accomplish its long-term mission or it might indicate there are administrative problems.
Are they growing their revenues over time?
You want to see that the charity is continuing to attract new donors and growing their revenue sources. Stagnation in revenue could be a sign that the organization isn’t doing enough to move forward and may not be able to expand their programs. The degree of growth will depend on the field, but you should at least have a clear understanding of where they are going.
How much are they spending on programs vs. administration?
Any organization is going to have administration costs, but a charity is all about balancing the necessity of running the organization and attracting new donors while providing the programs and initiatives you expect to see funded. We have all seen the reports of scams, or simple mismanagement of charitable organizations. Make sure you are getting the best return on your money and that it is going to the people and programs that you stand behind.
Have you done a Google search for red flags?
It may seem too easy, but a Google search can be an excellent tool for uncovering potential red flags. If the top results return questionable information from respected sources, such as news articles on administrative wrongdoing or mismanagement, it is an obvious reason for concern.
Reports of lavish fundraisers could also raise questions, especially if financial records don’t show a pay-off for the expense. On the other hand, well-reported articles about the charity’s programs and accomplishments are good signs that the money is going where it should.
Should you dig deeper using comprehensive evaluation tools?
While Google might give you a broad overview, tools and databases specific to charity evaluation will give you a more comprehensive look. Charity Navigator is one such site. A non-profit themselves, they do a lot of the legwork for you and present their results and evaluations as easily understandable ratings. They can also connect you with the resources to do your own investigating, such as Form 990s, and guides on what to expect as a donor.
Charitable giving has many wonderful benefits for you, your family, or your business. Make sure you maximize your contributions by ensuring that you and the charity are on the same page, that they are upstanding, and that they have a good record of producing results. When you do, you can be confident that you are getting the best return on your money and benefiting those who need it most.
It’s important that you work with a financial advisor who also shares your values when you plan your giving to charity. If you want to work with a firm that values community and philanthropy, contact us to learn more about how we can support you.
Our philanthropic interests are personal to us and are not reviewed, sponsored or approved by CWM LLC.