How You Can Start and Operate a Soup Kitchen

Mission Possible: How You Can Start and Operate a Soup Kitchen

Opinion: Before selecting charities to support, ask some questions

I’m a huge fan of the nonprofit sector. The sector does, however, have some structural flaws, as a recent book by Ken Stern, “With Charity for All: Why Charities Are Failing and a Better Way to Give,” points out.

I concur with Stern’s central criticism that charities need to do a better job of evaluating and measuring the effectiveness of their programs. They need to rely much less on simplistic measures, such as the number of clients served or number of hours of service provided and more on performance metrics that ascertain whether their programs are having a real impact.

We need to look for results, whether it be measurable change in client behavior, quantifiable improvement in client performance, reduction in recidivism, and whether they meet the community’s emergency needs, etc.

There is also a need to do a better job of publicizing which nonprofits are producing results and which are not.

It is very important to keep in mind that as government continues to address the nation’s most difficult problems, the most intractable problems will fall on the nonprofit sector. Phil Buchanan, president of the Center for Effective Philanthropy, was on target when he wrote in The Harvard Business Review: “No type of organization — government, business, or the nonprofit — has a monopoly on effectiveness. And nonprofits are typically tackling the most complex problems of all. If those problems could have easily been solved by government or business, they wouldn’t exist at all.”

If a nonprofit has gross receipts of at least $200,000 or assets worth at least $500,000, it must file an IRS Form 990 annually. This important filing contains useful information on the charity’s mission, programs and finances. To learn more about a nonprofit, you can start by looking at its Form 990. If a number jumps out at you, contact the agency and ask them to explain.

I would urge donors to consider the following questions when reviewing a nonprofit’s brochures, website, annual report and newsletter while trying to decide which charities to support:

  • Is the agency operating programs that are consistent with its mission and expertise and is the charity effective in achieving its stated mission? Many agencies, often in search of new funds, engage in mission drift and spread themselves too thin. When it comes to mission, I’m reminded of the words of legendary television basketball analyst Al McGuire, who berated a team that, though ahead at half-time, switched from a man-to-man to a zone defense: “Dance with the girl you brought to the dance.”
  • Based on its Form 990, is a nonprofit overpaying — or underpaying — its staff? Effective organizations do everything they can to pay their staff competitive wages and provide benefits so they keep their talent. There is a strong correlation in all organizations between high turnover and poor performance. CEOs who successfully lead many nonprofit agencies would be very successful in government and the private sector. These talented individuals deserve to be paid fairly. I’m not suggesting, however, that CEOs of nonprofits should receive salaries commensurate with the private sector.
  • Is the agency investing in the future? While frugality is good, effective charities need to invest in human and capital infrastructure. I’m not advocating overspending on overhead (administrative and fundraising costs), but not spending on the administrative infrastructure necessary to measure program results is short-sighted. So is not attending to preventive maintenance, upgrading computer systems, providing ongoing staff training, doing strategic planning or building an operating reserve. One should not equate low overhead with managerial excellence. By itself, overhead is a poor measure of a charity’s effectiveness.
  • Is the agency’s threadbare look the way to go? Some nonprofits fall prey to the “shabby chic” mentality when it comes to their office furniture and equipment. I’m not suggesting that charities spend thousands on furnishings, but not upgrading office equipment and internal systems can be penny-wise and dollar-foolish.
  • If the agency relies heavily on event fundraising, is it measuring its real cost? It is not enough to say that an event generated $100,000 — it’s important to know the actual cost to put on the event, including staff time.
  • Is the agency spending too much of its funds on public relations and/or fundraising and enough on direct services? It is appropriate to ask what percentage of cost goes toward public relations and fundraising.
  • Does the charity have a diversified mix of fundraising sources? Too many nonprofits rely too heavily on single sources of funds, e.g. government, a large foundation, a major corporate supporter or an extraordinarily generous individual donor. Just as a good investment portfolio is diversified, a good income stream should be diversified to cushion the effect of the loss of one or two large supporters.

If you are considering contributing to an area nonprofit, it is OK to ask these key questions before making a donation. Even better, get involved with local charities and see firsthand whether their programs are benefiting the community.