Our fundholders often ask us how to determine if a nonprofit is effective. Many times, financial reports are used as a measure of effectiveness, but a nonprofit’s finances only tell part of the story. Getting a clearer picture of whether a nonprofit is doing its job well takes effort.
Collectively, the Omaha Community Foundation staff has decades of experience in the nonprofit sector. And we love sharing our knowledge with you. If we can help you make your philanthropy more effective and impactful, then our community only gets better, and that’s what we want most of all.
We’ve listed a few questions below for you to think about before making a substantial investment in a nonprofit’s work.
Can the nonprofit clearly articulate the need in the community that it is trying to address?
What is the nonprofit’s mission, and does it align with your values and priorities? Is the mission clearly articulated? Is there a viable strategy to carry it out? You may be able to get some of this information from a nonprofit’s website or annual report, but don’t hesitate to ask questions.
Programs are how a nonprofit fulfills its mission and addresses needs. What does the nonprofit do? Do the programs align with the mission and address the need?
This is more than just the number of people participating in the nonprofit’s programs. Outcomes answer the “so what” question. So, 100 people participated in programming, what difference did that make? Did they learn new skills, or change their behavior in some way?
Be mindful that many nonprofits, especially small ones, don’t have the resources to do an extensive evaluation of their programs, so don’t expect glossy reports and lots of statistical analysis. But they should have articulated at least one or two outcomes and done some basic measurements to track their progress.
Is there effective executive leadership, both on the staff and board? There may not be lots of advanced degrees or certifications, especially in small nonprofits. The life experience of leaders can bring a level of authenticity and credibility to the work that is important.
Pay attention to the skills board members bring to the nonprofit. Is there someone with accounting or financial knowledge on the board? Board members with human resources and/or legal backgrounds can also be helpful.
Obviously, nonprofits don’t exist to make a profit. They don’t have shareholders or owners who expect dividends or payments. Money invested in a nonprofit goes to fulfilling its mission. All that said, operating at a loss isn’t sustainable over the long term for any nonprofit. So, look for a balanced budget or even a surplus at the end of the year. Any surplus will most likely roll into the next year’s programming, or an emergency reserve fund.
And a note about overhead. Many donors hesitate to give general operating funds to nonprofit organizations because they want 100% of their donations to go directly to those in need. This often starves a nonprofit for funds used to pay for vitally important infrastructure like computers, copiers, utilities, and administrative staff. Many nonprofits are doing amazing programming in the community, but their staff has 10-year-old computers, and they struggle to pay the rent in their offices. Ask yourself if your business could operate without that kind of infrastructure.