Smart Giving Guide

A strong organization can clearly articulate why it exists (mission) and what long-term change it is trying to achieve (vision).

Be cautious of statements that are overly broad or generic, such as:

• • “Empowering communities.”
• • “Making the world a better place.”
• • “Serving humanity.”

These phrases sound positive but lack precision. Instead, look for:

• • A clearly defined target population.
• • A specific problem being addressed.
• • A defined geography or scope.
• • Evidence that programs align with the stated mission.

Executive compensation should be reasonable, defensible, and aligned with scale.

What to look for:

A. Compare salary to total cash revenue (not inflated revenue). If an organization reports $20 million in revenue but $12 million is noncash (e.g., donated goods), the true operating scale may be much smaller. Evaluate compensation against cash revenue and operating complexity.

B. Benchmark against similar organizations. Ask:

• • Is this CEO running a $2M organization but earning what leaders of $20M organizations earn?
• • How does their pay compare to organizations of similar size and mission?

Large national nonprofits often pay higher salaries because they manage complex operations, oversee large teams and compliance requirements, and compete in national executive talent markets. A smaller, community-based organization with modest operations should reflect that scale in compensation.

Red Flag: Some organizations do not list executive compensation. This can be a potential red flag. In some cases, the executive may genuinely be serving as a volunteer. In other cases, compensation may be structured in ways that reduce transparency, such as payments through related entities or alternative arrangements. When compensation is unclear, it warrants further questions.

Some nonprofits report large amounts of noncash donations, often called Gifts-in-Kind (GIK). These can include donated medicines, clothing, food, and equipment.

GIK is not inherently problematic. But it can distort financial ratios. When a nonprofit receives donated goods, the value is recorded as revenue and the same value is recorded as a program expense when distributed.

This can:

• • Inflate total revenue.
• • Increase program expense ratios.
• • Make overhead percentages look artificially smaller.

For example: If a nonprofit receives $10 million in donated goods and $2 million in cash — revenue appears as $12 million, program ratio may look 90%+, but only $2 million is actual operating cash.

As a donor, you need to ask:

• • How much of revenue is cash vs. noncash?
• • What percentage of programs are direct services versus pass-through goods?
• • Would the program ratio look different without GIK?

A common benchmark in the sector is that nonprofits should spend at least 70% on programs. While this is not a hard law, it is a useful screening tool.

Spending less than 70% on programs may raise questions as it suggests a heavy cost structure relative to mission delivery.

That said, context matters and exceptions include:

• • Early-stage organizations investing in infrastructure.
• • Advocacy organizations where impact isn’t measured by direct service.
• • Organizations building major fundraising capacity temporarily.

Review 3–5 years of financial history on their website and ask:

• • Is revenue steadily growing?
• • Is there extreme fluctuation?
• • Are expenses scaling responsibly?

Look at:

• • Fundraising expense as a percentage of revenue.
• • Cost to raise a dollar.

Strong governance is often invisible but there are clues. Look for:

• • A qualified board (listed publicly).
• • Board members with diverse expertise.
• • Does the CEO have family members or close friends on the board? This could be a red flag.
• • Transparency in reporting. The 990 Schedules tell a complete picture.
• • If information is hard to find, that itself is information.

Revenue does not equal financial health. Look at:

• • Net assets.
• • Months of cash reserves.
• • Dependence on restricted funding.

Output and beneficiary numbers matter, but outcomes matter more. Ask:

• • Does the organization clearly define its impact?
• • Are outcomes measured?
• • Is there evidence of learning and improvement?

Be cautious if you see:

• • Excessive executive compensation relative to scale.
• • Heavy reliance on noncash donations without transparency.
• • Program ratio consistently under 70% without explanation.
• • No financial transparency.
• • Dramatic revenue swings with no context.
• • Marketing claims that sound too perfect (e.g., "100% of your donation goes to programs") without clear explanation.