Befriending Nonprofits, Part 2

Note: You’ll be lost if you don’t read yesterday’s post, How to Befriend a Nonprofit, because I’m going to continue on from there. So you should read it. It has some good stuff.

Can you read that? These are the important lines from the Salem Animal Rescue League’s 2006 990 form. I chose them because they’re a small nonprofit which means they’re not covered by Charity Navigator, and because I like animals. It’s more fun learning about something you like.

The first line we’re interested in on this form is #17, Total Expenses. They spent $115,304 total in 2006. The previous lines break that down for you. Line 15 shows $15,660 spent on Fundraising Expenses, line 14 shows $7430 on Management and General (also known as Administrative), and line 13 shows $92,214 on Program Expenses. If you’ll remember, there’s a golden ratio for nonprofit percentages: 15/15/70. A little figuring shows us how the SARL measures up :

• Fundraising ÷ Total = 0.1358, or 13.5%.
• Administrative ÷ Total = 0.0644, or 6.4%
• Program ÷ Total = 0.7997, or 79.9%

They’re doing good so far, right? Their fundraising percentage is a little high for the Charity Navigator website. Here’s exactly how Charity Navigator does their ratings. If we’re going by their standards, SARL gets 7.5 points for their Fundraising percentage, 10 points for their Administrative percentage — and then we have to look at their fundraising efficiency. We talked about this yesterday: fundraising efficiency is how much a nonprofit spends for every dollar it brings in. That means that we have to look at the Revenue for SARL, which was $222,501 in 2006.

• Fundraising ÷ Revenue = 0.0703, or 7¢ for every dollar

According to Charity Navigator, SARL would receive 7.5 points for their fundraising efficieny — not the best, but also not the worst. So if we decide to total their points, they have 25 all together, which is 1 star, for their “organizational efficiency,” or how well they do day to day. That’s a pretty low score.  Hopefully, they’ll be able to bring it up with the second half of the rating system.  [June 15, 2008: Aha!  They actually receive 3 stars in this category?  What went wrong here?  I forgot to add in their 7.9 points from their 79%  spent on program expenses.  Get it?  79% = 7.9 points?  Oh, nevermind.]

Charity Navigator also looks at their “organizational capacity,” which is how sustainable their practices are over the years. For all we know, SARL just had a bad year in 2006, but good showings in the previous years. You want to know if your charity can last over the years; otherwise, you’re tossing your money down the drain. Now we have to go back in time for a few years and look at SARL’s financials. First, we need the total revenue for the past four three years. (Just so you know, three years of data is all a charity is required to make available to the public. Guidestar archives the 990s after three years, and you need to pay and subscribe to see them. Crap! We’ll make do with three years, even though Charity Navigator likes to use four.)

• 2004: $157,310
• 2005: $192,398
• 2006: $222,501

And the total spent on program expenses for the same period:

• 2004: $48,273
• 2005: $67,320
• 2006: $92,214

There’s a standard formula for calculating yearly growth. According to Charity Navigator, here it is: “[(Y_n/Y₀)^(1/n)]-1, where Y₀ is the value measured in the first year of the interval analyzed, Y_n is the value measured at the end of the interval analyzed, and n is the length of the interval in years.” I’m not going to walk you through the computations because that would take forever and I’m not really a big fan of typing out all this math stuff. And I’m sure you’re not super excited about reading it, so maybe we’ll just skip to the results. I’m a big fan of skipping ahead.

…

Hm. Apparently I’m not doing this right. In my defense, I haven’t calculated this type of stuff in approximately 8 years, and I’m quite tired. Shall we save this for another day, then? I’ll have more of a chance to look the information over and find out what I’m doing wrong. In the meantime, you’ll have to wait and see if SARL will make it past the one star status. [Insert old-timey suspenseful organ music here.] Ooo, I love a good cilffhanger.

Just so you know, there won’t be a post tomorrow: it’s my birthday! I’ll be down by the sea for a few days sans computer. So, if you want to figure out the SARL’s score for their organizational capacity, you have my blessing. In the meantime…

to be continued….