Nonprofit Evaluation: Own Your Financial Transparency Story

In any industry sector, it is vital to own your story. This is especially true in the nonprofit sector where many prospective donors rely on nonprofit evaluation sites, like Charity Navigator, for making decisions on what organizations to give money.

In this vein, most nonprofits live and die by the mercy of charity evaluation ratings, but much more can be done when it comes to being financially and operationally transparent.

In addition, with competition for donor money being very intense, today’s nonprofits cannot afford to operate in a less-than-transparent environment. The key is to fully own and tell your story—on your own terms.

The Reality of Charity Evaluation

While achieving high ratings from evaluation sites is important, this does not always provide a complete or accurate picture. The reality is that many four-star rated nonprofits are not necessarily well run operationally and financially.

Conversely, a two-star rated charity does not always translate into the organization being a bad target for donors, especially since many evaluation sites still rely on older tools for analyzing efficiency and efficacy in overhead versus money going to actual programs.

While others, like Givewell.org, try to take a deeper evaluation approach by assessing whether or not the overall mission of a nonprofit is truly effective, many high-rated organizations on the site actually have high administrative and fundraising expenses.

The end result is that donors are being influenced by information that does not tell the total story about a nonprofit’s impact.

Own Your Transparency Story

Today’s nonprofit organizations are highly dynamic, and analysis of impact goes much deeper. As such, it is critical to own your story by being fully transparent, and it starts with sharing your IRS Form 990, which should not be viewed as a traditional tax return, but as an “information return.”

The IRS Form 990 shows everything from total revenue, grant amounts by program, leadership compensation, number of employees and volunteers, investment income, total fundraising fees, expenses to payments to independent contractors and much more.

Also, do you have an audit committee, a formal process for evaluating employee compensation and even a whistle blower program? If the answer is “yes,” then these are further validation points to share with donors.

With this comprehensive data, consider developing digital and social media marketing programs for sharing this information to prospective donors, and don’t wait until annual report time.

For example, developing an ongoing blog or podcast series with your leadership about each aspect of the IRS Form 990 can help to raise more awareness with prospective donors.

You can also create content that shows how your organization is making and measuring true impact, which could include everything from number of people served, how you are best using grant funds, data from using efforts-to-outcomes software providers and more.

In addition, a “donor spotlight” interview series can be highly effective. By allowing happy donors to share their stories about why they chose your organization, it is much easier to influence and expand your donor base. All of this content can easily be shared through today’s social media channels.

What If Your Story Does Not Add Up?

For nonprofits struggling with telling their stories, it may be time to take a hard look at your organization. For example, if you are not sharing your IRS Form 990, it can create the perception that your organization is not well run.

Developing sound business processes and financial strategies will allow you to be fully transparent with donors. Ultimately, it’s too easy for donors to say “no” to your organization if they don’t have all of the relevant facts.

Don’t Manage for the Evaluators

While achieving a four-star rating on sites like Charity Navigator can be valuable, operating your business only to please the evaluators can have negative consequences.

For example, the measurement criterion often focuses on financial analytics that don’t lend themselves to best supporting the mission. In other words, it can take the eye off the ball operationally, which most nonprofits cannot afford to do these days.

In order to be operationally sound, your organization’s stakeholders should always take top priority. With this vision in mind, everything else should fall into place, especially when supported by a sound board and other CPA partners who can help lift the veil of financial transparency.

Charity evaluation is a laudable measurement tool that helps donors make educated decisions on where to give money. However, there is always much more to any story, and now’s the time for nonprofits to gain competitive advantage by embracing new financial transparency strategies.

And, if you don’t own your story, someone else will.