Charitable Giving: How to evaluate and support good causes

With the holiday season upon us, small businesses will once again find their mailboxes overflowing with charitable appeals. A recent report by Blackbaud, a software provider for nonprofits, found that more than one-third of all charitable giving happens in the last three months of the year. That giving really adds up: According to Giving USA Foundation, American corporations and businesses gave over $16 billion in charitable gifts in 2013. Obviously, every small business wants to ensure that the dollars they donate are used wisely, but how can they evaluate a charity's efficiency? What's a sensible way to choose good causes to support? We asked some fundraising experts to give us their perspective on how small businesses can make informed judgments for doing good.

Donate your services

While charities are still happy to accept monetary donations, they are also open to other forms of support. "Businesses can think about ways that can bring their own expertise to a particular charity," says Michael Nilsen, vice president of public affairs for the Association of Fundraising Professionals. "I think most charities would love it if an organization came to them and said that they'd like to get more involved."

For example, Nilsen says that many charitable organizations would welcome an overhaul of their website or someone to help them with their social media efforts—services that a small business could provide. Nilsen explains that large national charitable organizations are doing well, but that smaller charities are still recovering from the economic downturn and can use help in many different forms.

Nilsen recommends zeroing in on the issues that matter deeply to the business and to the employees and then find charities that support them. "The charity process gets better when there are more engaged donors and engaged volunteers—as opposed to trying to figure out what's most efficient or most effective—because there's no easy way to measure that," he says. "You could have five different charities working on the same issue and they're probably doing five different things, whether it's research or program implementation. Figure out what's most important to you and focus your giving on that. Find out from employees about organizations that they like, so you've got that engagement started already.”

Use outside ratings agencies

There are a number of services—such as Charity Navigator, Charity Watch, GuideStar, and the BBB Wise Giving Alliance—that provide information about a charity's functions, management, finances, and policies. While some of these services are free, others charge both site users and the charities themselves to be rated.

Sandra Miniutti, vice president of marketing at Charity Navigator, which provides information without charge, recommends looking at three broad areas when investigating a charity. First, see if they spend the bulk of their finances on programs compared to overhead costs. Charity Navigator uses a 75 percent to 25 percent ratio, although smaller or newer charities will likely be spending more to build their support base. A charity that generates more money in each succeeding year and that also maintains a rainy day fund are also positive indicators of a well-run operation.

Second, see if there are outside independent voting members on the board and whether an impartial audit is done annually. Third, look for charities that are making an impact and are willing to share their results in specific metrics.

"When you call them, you want to go beyond just numbers," Miniutti says. "You don't want to just hear that 10 people got placed in jobs this week. You want to know: how long are these people keeping these jobs? How can the charities scale up? What challenges do they face? You want to probe a little deeper beyond just one heartfelt story about one person being helped. We would always encourage donors of any kind to open up a dialogue with a charity. For small businesses, that can be critical because if you give the development staff person a call, they may have ideas about ways that you can work together to both further your company's goals and further the charity's goals."

Get involved

Appeals that turn up in your mail can also tell you something about the impact of the charity. For example, an organization that delivers food to elderly shut-ins could say how many meals each donated dollar will provide. To make those dollars go further, some small businesses will match employee contributions up to a fixed amount or even make charitable giving part of their culture. Case in point: Lautman Maska Neil & Company, a Washington, DC-based fundraising agency, that practices what it preaches.

"Instead of giving gifts to each other at the holidays, we support one of the local chapters of Volunteers of America," says Lisa Maska, partner and owner. "They always have lists of things needed by families. We get about three families, maybe 12 to 15 people. We get their wish list and we each volunteer to buy the things that they want. Someone will buy the clothes and someone will buy the toys. We gather everything together and VOA picks it up.” Maska also recommends that a small business can find a charity locally that they feel connected to, get to know them, find out what they need, and how that business can help.

And how trustworthy are telemarketers? Maska says that the overwhelming majority are legitimate, but a skeptical donor can always ask the telemarketer to send them printed material through the mail that they can evaluate themselves. They can also follow up directly with the charity to see whether a telemarketing campaign is underway.

"So much press is given to charities that maybe aren't doing things the way they should be, but most charities in my and the industry's experience are extremely well-run, accountable, and have incredible ethics," Maska says. "They just want to provide the best support to their constituents."