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The Business Of Giving: Choose Your Charity


A little philanthropy goes a long way.


At some point, you've probably felt a sense of outrage that a particular problem in your city, country or perhaps the world hasn't been solved -- or at least addressed -- in a significant way.

That's when you should get involved in the issue. Whether it's hunger in your neighborhood, the U.S. or Africa, depression in teens or post-traumatic stress syndrome in soldiers, global warming or autism research, your parents' temple or the church that just baptized your niece, the list of non-profits supporting communities and working for a better world is large and growing.

According to the National Center for Charitable Statistics, there were over 1.2 million public charities registered with the IRS in 2006. The chart below provides a broad picture of contribution by category of charity.

After you decide where you passion lies, how do you select a specific charity? Choosing wisely takes a bit of time, but think of the care you lavish on your financial investments. Your charitable contributions are also investments - in caring people and organizations.

Your first stop should be a visit to the websites of charities that grapple with your issue of choice: Look at their missions, their boards, donors and annual reports. Make sure they have 501(c)(3) status, indicating that contributions are tax deductible based on IRS recognition of their programs and services as beneficial to the public interest.

There are quite a few charity watchdog sites that investigate and analyze non-profits. In addition to offering searchable databases by category, state and size, several rate charities according to their financial health, organizational efficiency and capacity - all based on the charity's informational tax return (IRS Form 990).

Charity Navigator is one example of a website that evaluates organizational efficiency by the relationship between spending on programs, administration and fundraising, and fundraising efficiency (or the cost to raise one dollar).

While administration, overhead and working capital requirements are different for a food bank and a museum, in general your chosen charity should be "lean" on the administrative expense side and "heavy" on the program expense side. Similarly, fundraising expense (including advertising, awareness and direct appeals) should be as efficient as possible, always focused on spending less to raise more.

Charity Navigator analyzes organizational capacity in three categories: primary revenue growth, program expense growth and working capital growth. Like a commercial business, charities that show consistent growth and maintain financial stability are more likely to be around for years to come. They can plan strategically and pursue long-term objectives rather than scrambling to meet weekly and monthly expenses. Charities that are financially sound are better positioned to meet the social and environmental challenges of today's world - especially in a weak economy.

That said, financial stability may not be the most important metric for your charity. Some choose to invest large amounts in a charity's infrastructure and administration in the short-term in order to affect geometric benefits in years to come. Other donors are interested in funding pilot programs (think startups) which are high risk, but will provide high rewards if they show positive outcomes.

The most important guidance I can give you is to research your charity, recent strides made, goals for the future and strategic plan to meet those goals.

Other resources:

  • from the Better Business Bureau Wise Giving Alliance.
  • aims to "revolutionize philanthropy and nonprofit practice by providing information that advances transparency, enables users to make better decisions and encourages charitable giving."
  •, from The American Institute of Philanthropy, is a "nationally prominent charity watchdog service whose purpose is to help donors make informed giving decisions."
  • includes many links and a useful FAQ about nonprofits.
  •, from The Chronicle of Philanthropy publication, has a practical website with many useful links to past articles.

This isn't a complete list, but you get the idea. And you're not alone in needing information to give wisely and well.

Finally, a shameless plug for giving to human service organizations: There's no better return on investment than in a child or adult with obstacles to overcome on the road to success.

Charity Navigator consistently gives The Children's Aid Society its highest ranking of four stars. According to the online resource, the average charity spends over 17% of donations on administration and fundraising. We spend only 10% on these functions, with 90% going directly to service children and youth. And while we're extremely proud of our financial stability, we take even greater pride in our program outcomes and the benefit to our children - the true essence of our success.

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