Warren Buffett’s Donation Tip…”Look For Sustainability”

Being a nonprofit doesn’t mean a company shouldn’t make money, just that it must reinvest that money toward its cause, rather than in bonuses for corporate execs. You’ll want to invest in nonprofits with the ability to sustain themselves, so they’re not solely dependent on asking for more money.

There are two main sources of revenue for nonprofits: income through a traditional business model (supplying goods or services in exchange for money) and fund-raising. Ideally, a nonprofit should pursue diverse revenue sources in case one dries up or becomes less reliable. If a nonprofit shows a budget deficit for a few years in a row, that may raise a red flag about whether it’s running on a sustainable model.

You can do research right on an organization’s website, which usually provides enough information to give you a sense of where it gets its money, and how it spends it. You can also look at an organization’s Form 990, an annual IRS filing that details its revenue, expenses, program costs and compensation for key officers and employees. You can find nonprofits’ 990’s through the Foundation Center’s 990 Finder and GuideStar.org.

A word of caution, however. Beware an organization that underpays its staff: “Nonprofits can feel a lot of pressure to keep costs down in a variety of ways, such as offering salaries that are inadequate to attract and retain qualified staff, cutting back on evaluation and performance measurement, and under-investing in critical infrastructure such as data management systems and effective fund-raising tools,” says Riccio.

According to The Overhead Myth, a website run by GuideStar.org, “Under-investing in administrative costs is consistently linked with poor organizational performance and sustainability—trapping organizations. In our view, as long as these expenses support a nonprofit’s mission and goals, they should be considered reasonable.”

The second aspect of sustainability to think about is personal sustainability. How much do you give per year, and are you satisfied with that amount? Could you give more, and do you want to? How does that total fit in with your overall budget? Your money will go even further if you itemize your deductions and report your charitable giving. Charity Navigator provides a giving calculator to understand the tax implications of your giving.