Many people think that giving away money is easy to do, just look out your window when you stop at a light and see the people begging for money; a dollar here, a dollar there and maybe you will have hit your charity giving for the day. For those taking a course on philanthropy students find out how hard it is in determining how to give money away.
Many top schools now offer courses that teach students how to give money away, using real money from a grant given to the schools by either Hedge Funds or special finance companies. Students are taught how to look at a company and figure out what makes them worthy of the money. The process is long and difficult because you can not just look at their cause; everyone charity or non-profit says the work their doing is important, but not everyone knows how to manage an efficient order of operation and that is what students are trained to look at. Students are taught to look at the background of the person running the organization, the staff, where they got their education, or if they did, how long they have worked there and where did they come from before.
After a student has looked at whether or not the team they have working there is a good fit or not then they move on to their finances. Most non-profits, N.G.O.s and charity organizations have transparent books but if they don’t that should raise a flag. For any first time student looking at the finance reports of any company can be complicated because each company organizes things differently but if they look at it from a tax perspective which requires every company to file certain items a certain way then it gets easier reading the numbers.
So after all this hard work of pouring through the numbers and researching the background of the top employees, what is a student to determine, or in this case, supposed to learn?
1. How organizations manage donations
How an organization uses donations determines how focused on the cause they are. Many times organizations run just to support themselves with the donations they get, leaving many to wonder, why is the money not being spent more on your cause? An organization that reduces it’s overhead then it can spend more it’s cause and events.
A student would be taught in such a class to look at what they did with the last three major donations they received. Did it go to paying for staff salaries or did it go to a program they were trying to get off the ground? How much of each donation goes to just keeping the organization running?
2. Where does most of their funding come from?
This is an issue that many donors don’t really consider in full terms. Most people will look at a non-profit and think that because the word non-profit is in the title then they must be working for the good of the people but if all their donations are only coming from for-profit companies then what does that say about their order of operation?
Any organization needs to have a diverse collection of donations in order to really be concerned with getting their name out there. If they focus all their efforts on pulling only from companies that know how to make money on their own and one day they were to lose their funding, then their business model was not well planned out. This happens a lot and many go under every day.
3. How many donations did such and such organization receive in the last year?
This question is extremely important to understand because it explains how well their finances are but also their cash-flow. An organization, with a great cause, should have money coming in everyday in all kinds of sources, companies, grants, the public, private donors, etc. This shows to the investor that they understand how to handle donations because they deal with it on a daily basis. A company that only receives funding sporadically throughout the year will probably use that money to pay their bills and staff first before their cause.
4. How many individuals are impacted directly by the donations?
These numbers are important to look at because it shows how big of an impact that one organization has. Many grants require X number of people in a given program before giving away any money so if a company has less than the targeted amount then there is no sense if giving money to that organization.
As an investor looking at those numbers, you need to know how many people will be impacted by those donations. You also have to look at what kind of impact it will have, sometimes it is only indirectly, for example a charity that wants to build a lab to help people learn web design might only have enough to build the lab but not enough to have classes every week. Would such a donation help out their cause?
5. What does the company do with left over donations at the end of the year?
Many non-profits are required to use all the funding by the end of the year so if a company was not able to use up all of it then what do they normally do with any remaining cash? This question is evident if you were to walk into a non-profit and notice all the nice furniture and desks they have. A simple question of how many people were helped last year and this year will help show just how well that money is being spent.
6. How many grants does the organizations write a year, including any additional programs asking for money?
Any company that is in need of money to help keep their cause going should be looking for all kinds of programs. The number of grants they write and get approved versus the number that don’t get approved is also important to look at and why. Getting approved from a nationally recognized institute versus getting approved from a local volunteer program reflects highly on how well connected the organization is. This sheds light on how serious they are about asking for funding from the right places.
Putting it Together
Whether you donate to your local church or programs you see on TV, giving money away that will have an impact is harder than it looks. In many of these courses in order to get an A they must show, with just cause, why they decided to give away $50k to one organization or divide up the money and give to different ones.
The next time you are deciding whether or not to give some money away, you can look at it from this perspective, can I make a return on my investment allowing me to invest again or is this a one time donation? There are many small programs where you can learn how to invest without such a high risk. If you are serious about learning how to invest in a charity program, non-profit, startup, or N.G.O. do your homework first and find out right away what they plan to do with that money.
Here are a few places to help get you started without any huge risks.
Kiva – You can loan some money to those wanting to start a business. The best part is you will hopefully get your money back if they are successful and then you can invest again.
Crowdrise – Created by the famous actor, Edward Norton, he created a place where people can invest in all kinds of causes.
Kickstarter – Here you can browse all kinds of companies looking to get their product off the ground. If you do your homework and see what kind of influence they have online then you will be taking the first steps to investing in a company.
Indiegogo – This crowdfunding site takes you away from what kickstarter created and lets you invest in more independent projects that range from personal to adventure.
So now that you have an idea of what it takes to invest you can look at how to spend your money wisely when giving it away. The fact that so many non-profits and charity organizations are springing up everyday makes it harder for one to decide where to invest their money. An efficient use of the system would be to centralize causes into one organization rather let there be hundreds, if not, thousands of the same cause.
The cause in the end is what suffers from the diverse nature of so many different programs out there instead of benefiting. If there was only one organization for helping people with AIDS then that would make it easier for people to know where to donate but since there are so many now, it discourages those from donating as much as they would if there was only one. Words for thought.
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