Blog Posts: Nonprofit Performance
Guidestar announced in January 2018, "Around 50 percent of the nation’s nonprofits are operating with less than one month’s cash reserves." That headline makes it sound like a half million charities could close if people stopped giving for a month. Oliver Wyman and SeaChange Capital Partners analyzed Guidestar's archived 990s from 2010-2014 to make this claim. Suzanne Coffman, Guidestar's editorial director, summarized the data from this study of nonprofit financials in a simple article (admittedly designed to market a Nonprofit Quarterly webiner): "Half of U.S. Nonprofits on Financial Precipice, New Report Finds." That's scary news.
The good news is that Guidestar's information is both old and incorrect.
Why Christian Ministries Should Measure Results: A Response to the mantra "Aim for Faithfulness Not Results!"
“The kingdom path links success to obedience rather than outcomes.” That is the mantra from ECFA's new book The Choice: The Christ-Centered Pursuit of Kingdom Outcomes. Hoag, Rodin & Willmer have been publishing articles in multiple outlets (like OUTCOMES magazine) to push this message to faith-based nonprofits. Since Excellence in Giving clients fund many faith-based nonprofits, we care about the accuracy and consequences of this message. Unfortunately, the baby is being thrown out the door with the bath water.
High performing nonprofits develop careful strategies for creating consistent revenue to sustain operations. Donors do not want to support an organization one year and see its programs collapse the next year from insufficient funding. Great organizations with bold visions and effective programs understand that sustainable revenue streams are mission-critical.
Finding out if organizations you support will sustain themselves is step 3 in our 6-step process for evaluating nonprofit performance.
Do you want to know if charities you support operate efficiently and effectively in pursuit of their mission? You can. The best online charity evaluation platform just got better. The 2-page nonprofit Analytical Overviews from Intelligent Philanthropy have added 30 entry fields for a total of 150 up-to-date data points on organizational health and performance. Check out a sample 2012 edition Analytical Overview. There is no more comprehensive and concise overview of a charity's leadership, financial management, strategy and impact available on the internet anywhere.
New nonprofit information in the 2012 edition Analytical Overviews include...
High performing nonprofits must understand how to manage their money. Charities cannot promise great things to supporters and run out of resources along the way. A delicate balance of maintaining healthy reserves, minimizing debt, and sticking to a budget is required. Donors don’t want a bait-and-switch where increased donations go to debt service or get stockpiled in the bank without any increased impact. And no one can tolerate financial mismanagement where an organization lives in the red with unrealistic budgets or doesn’t put the majority of its funds into mission-related activities.
Where do you start when evaluating the health of a nonprofit organization? Incessant headlines about dishonest educational programs, irresponsible board governance, misleading cancer charities, and corrupt first responder foundations remind us a little assessment can go a long way. But most of us don't have time for detailed due diligence. So where do we begin a cursory evaluation of nonprofit infrastructure and impact?
Before you evaluate nonprofit performance, stop and ask 3 questions about the charity:
- Is the charity trying to create a long-term solution to a problem?
- Does the charity want to grow bigger and bigger every year?
- Has the charity identified Key Performance Indicators?
These 3 questions are all related to OUTCOMES. Outcome measurement and outcome-based evaluations have taken center stage in the contemporary debate about nonprofit performance. I, for one, am a voice and supporter of this trend. However, we can't let the trend rewrite each organization's goals. Some charity's just don't exist to produce the savory long-term, ever-increasing, measurable outcomes that have become all the rage. So if we are going to determine how well an organization is performing, we must first figure out what standards we can and cannot use to evaluate performance.
Endless conversation about "outcomes," "performance," and "impact" needs to come to an end. It doesn't need to stop. It needs to get somewhere. Concrete categories and conclusions need to take shape and either be adopted or discarded. That is what my next 7 blog posts are all about. I'm going to lay out a standardized approach to assessing organizational health and performance in the nonprofit sector.
Before I present the six standards for evaluating nonprofit performance, I've got to be clear about the pros and cons of a standardized approach vs. a customized approach.
"We've reached a total of 2.5 million people." I read claims like this one from many nonprofit organizations. The sheer size of the number is intended to impress potential donors. However, totals don't tell the whole story. One family ministry that has reached 2.5 million people in the last 34 years actually is in decline. The number of clients served has been dropping by thousands since 2006. In more alarming fashion donations have increased 18% during that time (significant for a $40 million operation) while clients served has declined 7%. Those trendlines tell the story that matters today. The organization's heyday has come and gone.
An informed practitioner of philanthropic due diligence is not easily taken by totals. The most valuable data is found in a time series not a "total" column.