Why Measure Impact

The finding that intrigued me the most from the Nonprofit Finance Fund survey was that 53% of the 6,000 respondents regularly collect data on the impact of their programs.  I thought the number would be higher.  In a time when nonprofits are facing government funding cuts and will be looking to individuals and businesses for more funding, they need to be measuring and communicating impact.

The 53% that measured impact corresponded closely to 54% of respondents who noted that funders ask them to measure long term impact.  While the survey does not note that the same nonprofits who measure impact are the same ones who are asked to do so, the similar percentages lead me to believe that is the case.

The number one reason nonprofits did not measure impact was that they noted they did not have enough time (69%).    The other reasons related to not having enough knowledge to measure impact.  These reasons included:  impact is not easily measurable (54%); no resources to hire an outside consultant to help collect data (52%); and not having the right staff expertise (40%).

Nonprofits must make the time to measure impact.   If they cannot explain to their donors, staff, and stakeholders that what they do makes a positive difference, how will they sustain the organization?

Now I know that studies show that 2/3 of donors give without consideration of the data.   I also know that many organizations provide services to recipients that they cannot track in the long term.

But consider this—1/3 of donors do give with consideration of the data.  So those organizations that regularly measure impact will appeal to more donors and be better positioned to thrive.  

On the difficulty of measuring long term impact, nonprofits need to engage in robust conversations, locally, regionally, and nationally to make sure that what they are doing is truly impacting the community.  They need to clearly define how they will validate and measure the impact.   Small local nonprofits can and do use national studies that refer to research based results.    This can provide the long term impact statistics that some donors consider.

Of all the survey results, this is the number to improve.  Over time, if this number increases and the impact is communicated to donors, staff, and stakeholders, not only will the financial viability of nonprofits improve but the impact of the nonprofit sector on the community will improve as well.

Reflecting on the Nonprofit Finance Fund survey

Nearly 6,000 nonprofits participated in the Nonprofit Finance Fund survey from all over the country.   Nearly ½ the organizations were between $500,000 to $5 million in revenue.    Most (40%) of the organizations were human services organizations with arts & culture (16%) and education (14%) the next two largest.   A few notable statistics:

Only 30% of the organizations received federal funds.  About ½ of the organizations received state and local funds.  Of those who received state and local funding, 63% received the same or more funding in 2012 as they did in 2011.  The % was about the same for federal monies.  I had expected government funding to decrease.  Based on the federal debt and looming state pension benefit funding requirements, I suspect these figures will go down in the future.   

I had also expected that more nonprofits would have less cash on hand.  However 44% had 4 or more month’s expenses on hand and 32% had 2-3 months.    It is not good—especially for those organizations that are likely to experience cuts in government funding.   And 25% of those responding to the survey had one month or less, which is very sobering.   But considering how lean the last few years have been, the nonprofits have really worked hard to hang onto some reserves.

The section of the survey on organizational management actions related to finance and operations asked respondents to check off actions they had taken from a list of prepared actions (in other words—it was not an open ended question).   I would have expected the highest responses to include changing the way funds were raised and spent.   However, that was actually the 4^th most frequent response (39%) compared to attending conferences and networking (58%); advocating to the government on behalf of cause (46%) and upgrading technology to increase efficiency (46%).     Many nonprofits had already pursued funding differently and cut expenses in prior years.    Nonprofits had cut back and even eliminating attending training.  We see a lot of great networking and collaboration come out of seminars.  It is great to see that nonprofits are able to get out again for training and networking.

The statistic that jumped out at me the most was on measuring impact—that is a whole post in itself so I will address that next time.

2013 Nonprofit Finance Fund Survey

Economic challenges continue while demand grows.  This is the primary message from nearly 6,000 nonprofits in the Nonprofit Finance Fund’s 2013 survey.  There is so much great information in here I want to take a few posts to explore it. 

The summary of the survey does a nice job grouping findings into several areas and concluding the following:

1. Nonprofits need new funding sources and models

2. Nonprofits that receive government funding face particular challenges

3. Under these challenging conditions, many nonprofits are unable to meet growing need in their communities

4. Nonprofits are changing the way they do business to adapt to the new reality. 

 Graphs, charts and pictorial representations clearly communicate the results making this a quick but powerful read.

What We Can Learn from the Dodge Dart Registry

The Dodge Dart commercial aired last night while we were watching TV (watch it here).   "Dad buys the engine. Grandma buys the rims.  Family and friends kick in and when its fully funded, its yours!"   We initially thought it was a spoof on the bridal registry.  But its real.   Check out the site here  

As the commercial ran and "100% funded" flashed across the screen--I didn't think bridal registry though--I thought nonprofit fundraising.  Give people something tangible to be part of and experience.  Several organizations already do this in varying ways.

Samaritans Purse

Habitat for Humanity

Compassional International

and our local Twilight Wish

How can you create an image of what you do and have donors invest in parts of the whole?

IRS Exempt Organization Focus for 2013

This post from Nonprofit Quarterly discussed what areas the IRS has targeted for 2013 with regards to nonprofit organizations.   A few notable areas:

1-Nonprofits that report unrelated business income, but don't file the form 990-T for unrelated business income
2-Nonprofits that report significant unrelated business income but don't show any profit for the income
3-Regulations and guidance for supporting organizations
4-Regulations for church tax inquiries and examinations

The article also noted the reduction in IRS audits of exempt organizations, the reduction of staff in this area, and the tasks mandated by the health care act that further reduce their available time for audits.   Over a period of 30 years, only one of our nonprofit clients was audited by the IRS and it turned out to be a random selection of a small nonprofit client to train the IRS agent. 

Regardless of whether or not you are likely to be audited by the IRS, your 990 needs to be accurate, transparent, and compliant.  More and more donors are accessing nonprofit 990's on Guidestar.  This comes up in our conversations with businesses and individuals when they are making donor decisions or if they are deciding to serve on a Board.  It is also coming up in conversations with estate attorneys who advise their clients to research the organizaitons they note in their wills.  If you are following the 990 instructions and providing clear information on your 990, it can increase your favor in your donors' eyes.

Thanking Volunteers can get you in trouble with the IRS

Nonprofits thrive through their volunteers.   When looking to say "thank you" some nonprofits may consider issuing gift cards.   This post by Katie Thomas, CPA with Henry & Home in Arizona reminds you to consider the implications of gift cards for volunteers.   Thanks to Jim Ulvog for highlighting this post in his blog-Nonprofit Update.

Year End Giving Tips and the Influence on Your Donors-Part 3

We have been looking at year end giving tips--most of which usually cite the tips from Charity Navigator.   Their discussion is much more in depth than the summary here so make sure to review their listing.  Our focus has been on how you as the charity can put your best foot forward.   The last three...

8.  Look at the charity's financial health.  Review the last three years of the Form 990.  Generally you would expect to see 75% of the expenses spent on program and 25% on administration and fundraising.   I was pleased to note that Charity Navigator affirms that well run organizations need to spend money on raising funds and the administrative functions of running the organizations.  I am always wary of charities who proclaim that 100% of your donation goes directly towards the program.  A sustainable organization spends money to continue fundraising and has a solid administrative foundation.   You should also have money saved for the future. 

We sometimes find that smaller nonprofits only allocate direct program costs to the program category.  You should have a reasonable method for allocating occupancy costs, office costs, and other costs to program, administrative, and fund raising.

9.  Concentrate giving.  If you have spent time evaluating a charity, give more money to that charity instead of spreading smaller amounts among multiple charities.  Charities spend time and money processing your gift and following up with future requests, newsletters, etc.  The cost to process a $10 gift will be likely the same as to process a $100 gift.  Overall, concentrating your gifts saves charities money.   This is an interesting perspective.  As a charity, you may be thinking that you welcome that $10 gift because you can demonstrate success in increasing that first $10 gift to a larger gift in the coming years.  If that is not the case, what can you do to engage donors so that they want to invest more with your organizaiton in the coming years?

10.  Make a long term commitment. When a donor sees the value of their partnership with the charity they will want to be engaged for the long run.  Do your donors feel like partners?  Similar to the prior point--how can you further engage your donors?

These posts have been aimed at helping you see your charity through your donor's eyes.   In the end, you are the steward of your donors funds.   By working in partnership with you, they hope to see impact in the community.   The more clearly you demonstrate this, the more they will want to partner with you.