More of Buffett’s Charitable Giving Tips

This is part two of yesterday’s article about Warren Buffett’s charitable giving tips. Let’s dive right in and look at the third and fourth steps of the process today.

3. Sustainability

There’s nothing wrong with a nonprofit making money. The problem potentially lies in what they do with the money that they earn. If a nonprofit makes money that they reinvest into the cause, then this is a beautiful thing. But if they are giving the profits as bonuses to corporate executives, then you see there is a problem at hand. It’s best to invest in nonprofits that have the ability to sustain themselves. This way they are not completely dependent upon charitable donations and asking for money.

Nonprofits have two main sources of revenue: traditional business model income (providing services and goods in exchange for legal tender) and raising funds. In an ideal world, a nonprofit should certainly look into many revenue sources just in case one or more becomes unreliable. If a nonprofit has a deficit in budget over a few years, it may raise a red flag in regards to whether it’s actually running a sustainable business or not.

It’s easy to research an organization right on their website, where you should have access to enough information to learn how the nonprofit gets its money and how it spends it. It’s also wise to take a look at the Nonprofit’s Form 990. This form is filed with the IRS annually, and provides the details of program costs, expenses, compensation for employees in key officers and revenue. Form 990 is easy to find on the Internet by visiting Guidestar.org.

A simple word of caution…

Be wary if an organization under pays its staff:

“Nonprofits can feel a lot of pressure to keep costs down in a variety of ways, such as offering salaries that are inadequate to attract and retain qualified staff, cutting back on evaluation and performance measurement, and under investing in critical infrastructure such as data management systems and effective fund-raising tools,” Riccio says.

According to The Overhead Myth, a Guidestar.org website, “Under investing in administrative costs is consistently linked with poor organizational performance and sustainability – trapping organizations. In our view, as long as these expenses support a Nonprofit’s mission and goals, they should be considered reasonable.”

The second thing to think about as far as sustainability goes is personal sustainability. How much do you plan to give per year, and is that amount satisfying? Could you possibly give more, and do you even want to? How does the amount of charitable giving fit in with your overall budget? Your money will go much further if you decide to itemize your deductions and report your charitable giving. To understand the tax implications of your giving, check out the giving calculator on the Charity Navigator website.

4. Excellence in Operations and Management

It’s possible to tell how tightly an organization runs things by taking a look at its public facilities to make sure that the place is inviting, clean and safe. “Take a look at the organization’s website and social media to see how it approaches marketing and communications,” says Riccio. “Look for signs that the organization communicates clearly, consistently and professionally.”

It’s also wise to take a close look at the organization’s staff. You’ll get a much better sense of who is behind the cause. The organization’s board of directors takes on the responsibility of everything including preserving the mission, financial accountability, and the executive director “has the overall responsibility for executing the organization’s strategy, managing the staff and operations, and is often heavily engaged in fund-raising,” Riccio tells us.

All in all, it’s best to think of the RISE system as a simple question: Is the organization capable of getting the job done? And will it help you do some good in this world?