Why depend upon others to give away your money? 

Umbrella organizations and Donor Advisor funds are not always your best choice. 

There is a fact that donors need to understand when they give their donation to organizations such as the United Way, Community Foundations or use Donor Advisor Funds.  The donor is immediately making the following decisions:  pay an administrative cost beyond their control; management of the donation is made by others; decision making on the amount of the donation is made by others; decision making on who receives the donation is made by others; how the funds are given when distributed is made by others; and giving others the right to keep part of the donation, since the nonprofit is a 501 c 3, to build a larger reserve/endowment using part of the donation.

The donor is selecting to pay administrative costs twice.  The organization that receives the initial funds uses a portion and then the nonprofit who receives an award usually uses a minimum of 10% for administrative purposes.  Said portion is not always the sum of the whole donation since the holding organization is not required to disburse 100%.  Most organizations keep a portion of the donation to increase their reserve/endowment including a portion of the return made from investing the donation. 

A fact not published or stated is that as these organizations build their staff, their salaries and infrastructures their assets grow.  There is a conflicting aspect to these organizations as a donor mission.  Is the donor acting to support the organization or to support a cause in the nonprofit community? 

As a donor specify and restrict your donation for the intent you want, including its growing investment return if you wish it to grow.  If you wish all of it to be spent then you should expect a bottom line accounting of what the money was spent on. 

Give directly as an individual, corporate foundation or outsource the foundation or giving campaign to a firm, but cap the expenses.  You may even use a fiscal intermediary to help a new cause.  You should set the parameters. 

How to choose a nonprofit to support?   

As a non-profit organization undertakes a fund raising campaign, the cash balances should be managed to provide reasonable returns with capital preservation the key component.  Short-term money management advice should be provided, based on both the risk and return profile of the nonprofit as well as the horizon of the funds.  The wealth management company should be independent custodians who are used to both holding the securities of the organization and being the clearing house for all trades.  The wealth management company custodian should provide the relevant accounting of performance and value.  Be proactive in checking the monthly statements and asking questions. 

Most states require nonprofits to be in compliance with their charitable giving or donor solicitation regulations.  It is important for the nonprofit organization to be responsible to procure a nonprofit’s auditor and to coordinate tax reporting to the state and federal tax agency and pertinent regulatory agency such as the Attorney General.  The 990 is most often the minimum financial record required by a government entity.  Therefore, make sure the organization is timely in filing the 990 each year. 

Remember that the more the nonprofit provides as avenues to learn about the organization and have the donors know the organization, the more likely the donor will give.

Should nonprofit organizations take risks with their endowment or risk creating an endowment? 

Endowments are constructed to provide a predictable and stable set of returns that will provide additional funds for operating expenses and preserve the purchasing power of the organization’s funds on an annual basis.  The approved wealth management company should provide custom portfolio management to the nonprofit through the procured money management service based on the risk/return profile of the client.  The portfolio should focus on asset allocation and risk-adjusted market performance that protects the principle and grows the assets.

The wealth management company may be able to set up or connect the nonprofit to a sister company to set up retirement plans for the employees.  In the process the wealth management company can manage these assets as well. 

Instead of fighting over what resources to allocate to any one core function consider outsourcing.  Time management can be well served with the right contracted services. 

With the intention of funders and donors to have 501 c 3 nonprofits be as effective and efficient as possible it is important to have the right infrastructure in place.  Those nonprofits that can clearly show that they meet the mission of their 501 c 3 status will match the economic climate where government is looking for more for less. 

To help level the playing field for non-profit 501 c 3 organizations outsourcing achieves the economies of scale larger organizations already realize without taking away the quality achieved in the existing small, specifically focused operation. 

A 501 c 3 nonprofit should have the core services:  payroll, accounts management, general accounting, bids, contracting, pricing, purchasing, and cost analysis.  These core services will provide the 501 c 3 organization with most of their day-to-day and strategic planning.  At the end of each year, the organization should develop the next year’s budget and will be able to plan labor and resources accordingly.  The core administrative services are to help plan the resources, providing estimates based on the organization’s historical data.  On a weekly basis, the 501 c 3 organization will be able to see how they are performing budget versus actual and month to date.  For the longer term, the core services should provide quarterly and annual planning and will provide longer-term analysis for resource and labor management.

While the core administrative services should provide the 501 c 3 management and Board the data necessary to manage the organization, the data must create certain reports pertaining to cash management, employment taxes and employee benefits.  The cash management should show what it takes to reach levels of 30 day, 45 day and 90 day cash flow.  The purpose of cash reserves is to enable the non-profit to have the ability to react to emergencies and growth without affecting day-to-day operations.

403B or 401K plans allow non-profit organizations to provide defined benefit pension plans to their employees, often with tax advantages to the employees and employer. 

The current economic outlook focus is to decrease the growth of government spending across the board, which means cutting funding to specific programs run by non-profits and the consolidation of others.  In order to maximize the money allocated to direct care/project results, government is forced to concede the benefits realized through a larger number of small, specialized non-profits and purchase services from larger organizations with an expectation of more efficiency.  In addition to this, larger organizations are able to weather a reduction in funding by diversifying the type of programs they offer and having larger credit lines, larger fund balances and assets that can be leveraged to offset deficiencies. 

Corporate giving is both a personal and corporate core value approach to philanthropy.  The approach to identifying donors for nonprofits through annual giving must be based on connecting a corporation with a reason to give.  The message from a nonprofit to a corporation should be based on why the corporate giving is good for their business.  Give a corporation a reason or reasons why giving to your organization as a nonprofit is meaningful to those in the company.  What is the emotional bond that the nonprofit creates for the individuals in a corporation making the philanthropic decisions on giving to want the specific nonprofit?  What does the nonprofit know about the corporate leadership and meaning/purpose of their corporate philanthropy program?  How do the nonprofit’s mission, goals and services help the corporation’s philanthropic effort?  In an effort to win over a corporation to be a philanthropic component of your organization plan on giving to be creative to define a clear goal for the donor to help financially or with in kind services or products.  Be able to show a donor how their money was spent.  In the corporate philanthropy world there are those who say they want privacy about their giving and there are those that want recognition.  The bigger the number the more likely the person wants to feel important.

Corporate philanthropy is about matching planned corporate giving with gifts, praise that feels natural in the corporate culture.  Corporate giving does not have to be just focused on one time of the year.  Those corporate philanthropic campaigns that are monthly or quarterly make the corporate giving a more permanent connection to the community.

Core values of an organization provide a return of positioning the corporation for opportunities to responding with action that is a testament to their excellence.  The corporate philanthropy program provides for personally helping individuals or a cause.  The act of philanthropy provides a learning experience and opportunities for acting upon what is learned with the nucleus to provide a tremendous means to reach, overcome and plan positive outcomes throughout the year.

Know what geographic focus the corporation has and to what degree that has defined or restricted the corporate giving effort.  Knowing any employees of a company will provide better access to the corporation or to the board foundation set up by a corporation for giving.  Community giving to the geographic area in which the corporation has a presence is one means to provide maximum impact in the nonprofit community.

Statistically information from government and nonprofit sources provide a base of information to focus on giving in a philanthropic campaign.  Two basic variables to use are zip codes and the US census data. The use of data on a city or town provides the geographic focus and can provide the extent of the impact the corporate philanthropic campaign can make.  Measure what the money is spent on.  Feel comfortable restricting the use of the funds for certain purposes.  Administrative and fixed costs to support an organization should be no more than your corporation. 

So what is the difference or advantage for corporations to set up foundations?  It allows for the corporate giving program to be built and managed less contingent on the current standings of the company.  In the times of positive corporate returns money can be donated above what will be disburse.  In the times of negative corporate returns money donated can be less but still have the impact intended under the corporate philanthropy effort for giving.  To the degree the corporation wants to run annual corporate giving campaigns is another deciding factor to whether establish a corporate foundation.

Corporate philanthropy is about making an impact.  To turn over funds to a United Way or Donor Advisor fund entity to give, sets the stage for giving to be base on whom someone knows, meeting another entities agenda and most likely the same general group of nonprofits receiving the funds.  It is wise to remember that possession of the money allows for 90% of the decision-making. 

The nonprofits are responding to the entity that has the money.  Therefore, if the corporate philanthropy initiative for giving is to be tied to the corporate mission, then it needs to be in the corporation’s control. 

The nonprofit industry covers many types of organization but it is the 501 c 3’s that are primarily financed through two main sources; government agencies and the private sector philanthropy.  Both sources are heavily tied to the health of the economy, with the private sector being more closely tied to the performance of investment securities.  With both the economy and the major aggregate indexes (equity and fixed income) having suffered declines in the past few years, nonprofit 501 c 3  funding has leveled off and the competition for funds among non-profits has become much more fierce.  Both government agencies and philanthropic organizations are becoming more selective in distributing funds, looking for nonprofit 501 c 3 organizations providing a more effective use of its funds.

Regardless of size, every non-profit organization needs the ability to do some basic administrative functions, such as human resources, accounting, purchasing, and auditing.  Larger non-profit organizations (defined by us as having greater than $3.5 million in revenue) are able to achieve economies of scale in many of these areas, allowing them to spend a smaller percentage of their overall income on administration and more on direct care.  Non-profits generally begin to gain this benefit by expanding to offer a wider cross section of services across multiple communities.  For small non-profit organizations 501 c 3’s, they are unable to benefit from such economies of scale.  Rather, they tend to excel in treating a small, focused segment of one community very intimately.  Simply put, they subscribe to the theory of quality over quantity.

In addition, most non-profits 501 c 3’s depend on government funds to support their operations and pay for their overhead.  Government organizations which provide the funding for these non-profits are constantly struggling with the need to purchase services in the most efficient, cost effective manner possible.  Often larger non-profits are able to offer the efficiency and cost effectiveness the government is looking for, but the government is looking for more than just efficiency in the human service sector.  They are also concerned about quality of care issues and free care/services.  Small non-profits are typically focused on a small, specific segment of the population, which naturally lends itself to a high quality of care and more donated services from volunteer time.

Dedicated staff time to focus on the Philanthropic endeavor will better provide for the goals and objectives of the corporate strategy for giving and making a difference.  To improve employee participation in the philanthropic endeavor the effort of corporate giving must as an important component allow for the provision of employee involvement.  The corporate giving initiative should provide for the opportunities of employees to identify the means for giving to nonprofits, the means to convey whom they wish to give to, how they wish the corporate giving to be recognized and to what degree they want to share with their fellow employees their opinions. 

Each employee has their own level of tolerance for giving and effort to accomplish the goal of corporate giving.  A flexible corporate philanthropy endeavor, which allows the various levels of participation, will improve the chances of success.  When the corporate giving program has a match or even a minimum that the corporation will give on behalf of each employee will increase participation.  However, there will be some people that just do not want to.  It is suggested that for the pool of money set aside by the corporate giving program for the match of employee which is unused at the close of the philanthropic corporate giving campaign be proportionally assigned to the organizations that were identified by the employees that did participate.  It provides for active employees to promote their cause and corporate giving campaign.  However, there should be ground rules for promoting the nonprofit causes.

Have the employees devise the corporate giving campaign with a geographical focus.  Have the campaign focus on the particular goals and objectives of the corporate philanthropic giving.  Have the employees or a consultant identify those nonprofits that meet the needs of the corporate giving campaign. 

Have a selection process for nonprofits that is either open, random selection, pre-selection or by invitation only. 

Open allows any nonprofit to apply to receive funds from the corporate campaign base on guidance set forth under the philanthropic endeavor.

Random selection is where the corporate giving decision making team just pick nonprofits and contact them to give them checks.

Pre-selection is when the corporate giving campaign is targeted for specific nonprofits that are known in advance.

By invitation only is where the decision-making team invites nonprofits to compete.

The management of a nonprofit does not have to be difficult for any size nonprofit especially small organizations.   Asking for help from consultants is not admitting the lack of skills or defeat.   Contracted employees are the best way to manage work, with the highest credentials for the work assigned.    Nonprofits need to focus on the “day job” their mission and let others perform administrative functions.  Consultants are especially able to make a difference for the smaller nonprofits under 3.5 million dollars and start-ups.  Consultants understand that navigating the often confusing and extremely regulated world of non-profit business can be a scary prospect for many people whose main focus is to help people and enhance communities.  The right consultant will understand that the non-profit business world can be just as competitive as the for-profit business world.  The right consultant can offer an expertise in dealing with a non-profit’s finances by taking care of the finances, year end reporting, payroll, and all other administrative aspects for the nonprofit, thereby lowering the nonprofits barriers to entry, while still leaving the organization in complete control of their strategic planning.  By using an expert in the understanding of non-profit finance, development and government regulations, the right consultant cannot only help the nonprofit avoid losses, but to thrive and grow by adhering to the same business sense applied in the for-profit arena.

Seeing the potential for efficiency in the non-profit sector, the right management company can generate economies of scale and decrease the total overhead cost for a non-profit corporation.  It should be its goal to provide nonprofit entities the opportunity to devote less to administrative costs and more to direct services.  As its philanthropic mission, the management consultant company should be a socially responsible company and committed towards making a difference for the nonprofit.