10 Ways to Spot the Best Nonprofits

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There’s lots of talk out there about how to tell a non-profit performer from a pretender. And for good reason. The lack of transparency and accountability in this $1.5 trillion dollar sector– 10% of our economy– has reached crisis proportions. Witness the piece in the Tampa Bay Times, America’s Worst Charities, that shows how orgs with trust-inspiring names like “The Cancer Fund of America” are really scams that bilk people out of millions. And now, Pro Publica has exposed the exaggerations and even outright lies of the Red Cross.  When even venerable charities like the Red Cross aren’t truthful, whom can you trust?

In response, non-profit catalogs like Charity Navigator and GuideStar have launched official-looking ranking systems. But they mostly examine only the IRS Forms that charities file every year, their Form 990s, and beyond minimal figures about pay and revenue, there’s very little in the way of transparency.

There are also Yelp-style communities for reviewing orgs, but these are aggregates of opinion, not true performance measurement. There are at least two praiseworthy examples of ranking systems using more robust methods: GiveWell and the Social Impact 100. However, both of them examine only a tiny slice of the $1.5 trillion dollar non-profit industry. While there’s much to be learned by exploring these two fine efforts, there are way over a million orgs out there, and that’s just in the US. What we really need is a useful lens for looking at any org, especially those we already know and want to help. The list below is our best effort.

But there’s a catch: truly understanding the performance of any organization, whether for- or non-profit, requires close and careful examination. While publicly traded companies publish quarterly financials and answer to hordes of inquisitive investors and analysts, non-profits undergo pretty much zero independent professional scrutiny beyond annual audits. So there’s no getting around it:  look closely, and know what to look for.

Here are 10 ways to get you started:

  1. People. The best orgs attract and keep top talent with competitive salaries and a happy, supportive culture. It’s a destructive myth that non-profit staff should martyr themselves. But most orgs still use martyrdom as a centerpiece in their HR polices. Ask your org for its pay scales and turnover statistics. Those shouldn’t be confidential– what are they hiding? And read the staff bios– are they the best and brightest?
  2. Social Return on Investment (SROI). The best non-profits don’t beg for money. They proclaim their SROI: 1) exactly who or what they change; 2) what the changes actually are; 3) proof the changes are actually happening; 4) measures of other major influences; and 5) percentage of the problem they are solving. No long stories, no emotionally manipulative appeals– just crisp, concise, comprehensive value statements.  Ask your favorite charity for a 1-page, fact-based answer to these 5 questions.
  3. Business Plan. The org has a concise, comprehensive, compelling business plan built around its SROI– with aspirational goals that are significant against the size of the problem; milestones; key performance indicators; and a detailed, 3-5 year financial projection. Ask the org for their internal plans– not their external brochures. 
  4. Dashboard. The org then boils its business plan down to a 1-page dashboard with key performance indicators around program quantity and quality, financial health, and revenue metrics. A dashboard with these elements is a sign of the best run operations. Download Tableau Public for the state of the art tool. It’s awesome and free. Ask the org for its dashboard.
  5. Revenue. The org can comfortably forecast how much revenue it expects in the next 12 months, and updates this pipeline every 2 weeks. And the org has effectively explored all the revenue domains: individuals, foundations, corporations, government agencies, and earned income. Ask the org for its pipeline, its 3-5 year financial projection, and its unique strategies for raising money from all 5 revenue domains– individuals, foundations, corporations, agencies, and earned income. Oh, and make sure they don’t lean heavily on bad strategy: auctions, galas, bake sales, etc. 
  6. Financial Controls. The best orgs will readily share their financials (balance sheet, profit and loss, budget) in an easy-to-read format. Top performers have a 12-month, month-over-month budget projection that looks at income and expense every 30 days and makes sure there is at least 6 months in cash in the bank. Ask for your org’s detailed financial statements, a summary of their financial reporting system, and the management letter from the last audit. 
  7. Board. Are there at least 3-4 people on the board with serious chops in business, finance or accounting? Proper governance demands that skilled, experienced, high-integrity, focused business leaders spend time supervising and supporting the staff. It’s not the only skill set required  (look to BoardSource for a complete overview) but too many non-profit boards are comprised of folks that don’t know what to look for. Ask your org for the detailed business qualifications of its board members– the size and complexity of the companies they have managed in the past, and evidence of their past managerial successes.
  8. Relationships. Send a typical charity $100, and you will get a thank you letter. And then a stream of appeals for more money. But the best orgs understand that we are all people who thrive in authentic relationships. So they take the time to explain what they did with the money. Maybe ask you what motivated you to give. Provide ways you can get personally involved with a community of like-minded supporters. Maybe even invite you to a party to celebrate the small wins. Ask your org how it engages its partners and supporters. Better yet, give $100 and watch what happens.
  9.  Growth. Just like the best businesses, the best non-profits are growing.  Because they have all the performance pieces described above, they are solving problems and raising money, and they are growing 10, 20, 30% a year or more. Ask your organization for its annual budget going back at least 5 years– are they growing or are they flatlined?
  10. Joy. The work of the best non-profits is suffused with joy. The lucky folks who get to work with and for and around high-performing non-profits aren’t workingthey are living out their values. There’s nothing better than being part of an organization that changes the world for the better.  Pay a visit, volunteer, talk with the staff and those whom they serve– the joy should be obvious. 

These points are meant to help you engage in a robust, effective, supportive manner. If you don’t get clear answers, encourage the org to be more accountable and transparent. If you can help them, please do! Because if more people start asking these hard questions, we will help the sector achieve transparency, accountability and high performance.

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