Paul Harvey might have left us ten years ago, but the rest of the story has never gone away. Growing up on AM radio meant that I listened to Paul Harvey talk about the news of the day and heard his fascinating The Rest of the Story segments almost daily. I learned things are never as simple as they appear on the surface.
When I entered the nonprofit world, and later became a philanthropy advisor I came to understand just how right Paul Harvey was. In countless conversations with nonprofits over the years, I’ve heard many explanations for, well we could fill in the blank all kinds of ways.
As a side note, throughout my career, I’ve been known for asking difficult questions. I was once given the nickname “Digger” during a year-long leadership program. I liked The Rest of the Story and all the answers it dangled before me to questions I didn’t even know to ask.
In my last blog, I talked about how to be a smart-hearted donor. If you missed it check it out here.
One of the fun things about writing a column several times a month is reading the responses and suggestions that come back to me. This time a friend who is a Board member of the local First Tee chapter suggested more smart-hearted questions.
Here’s what he suggested:
- When deciding between two agencies providing the same or similar services which one is the most cost-effective?
- How does the organization’s performance compare to their peers in other communities?
Is the Nonprofit Cost Effective:
Sometimes two organizations are doing very similar work. That may be especially true when you give to national organizations or similar work in different communities. How can you measure their ability to be cost-effective?
If you have access to their financial statements, you can compare their income for the year to their expenses to see if they are raising enough funds to cover the cost of services. It’s ok to occasionally be in the red and draw money from reserves to cover small shortages, but certainly, as a rule, they should raise enough funds every year.
We can also take a look at their statement of assets and liabilities to see what the ratio is between the two. There should be enough assets, like cash in the bank, to cover their current liabilities which includes their monthly operating expenses and short-term notes they may owe.
This explanation is overly simple. Some nonprofit organizations have complex financial statements, and we need help reading them. Don’t hesitate to ask questions. If you have a CPA friend ask that person to look at it with you. Ask the organization to explain its financial position.
Here’s the bad news. The above equation tells you if they are financially healthy, teetering on the edge of closing, or financially drowning and in need of an influx of donor support. But it still doesn’t tell you if they are cost effective.
To figure that out now you need to understand more about the cost of delivering their services which will not be easily unraveled by just reading the financial statements.
Sometimes organizations provide pie charts that reflect how much expense goes toward services, administration, and fundraising. That’s helpful as long as you know how many service hours or clients, or bags of food, or emergency utilities paid, or health clinic visits – fill in the blank with your favorite organization and their services.
The Rest of Their Story
But there will always be a rest of the story from this point forward. To dig deeper, you will have to spend time with someone in the organization who can answer in-depth questions.
Dig a little deeper. You may want to know if the services are changing or improving the lives of their clients. How do they measure success?
Do you need to do that to make a small donation? Probably not. Should you do it to make a donation that is large for your financial abilities? Absolutely!
Comparing Chapter Model Nonprofits
If the organization is a chapter of a national nonprofit, it is possible there will be comparative data available to see how one chapter is doing compared to their counterparts. That data can usually be discovered by making a phone call to the organization and requesting it.
Don’t hesitate to learn more about how they operate, costs per participant, how much of a donation stays local, how donations and fundraising are managed, and if the board is advisory only or a truly governing board.
Questions are like a shovel in your hand. All the answers are the rest of the story.
I hope you’ll join me in digging around. Let’s be smart-hearted together.
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This is great information Dawn. There are so many variables to consider and you really have to get to know the organization and ask questions to get a clear picture of their financial stability.