7 Vital Signs
How do you decide what charity to donate to?
I support my charity’s cause
I think what this charity does is meaningful
I donate just because donating is a good thing
These are all good reasons to donate. However, have you thought about whether your donation will truly make an impact?
In 2018, 88.9% of all donations went to 191 large charities, with annual receipts above $10.0 million.
Charities with annual receipts less than $500,000 accounted for less than 1% of all receipts, even though they form the bulk of charities in Singapore.
Source: Ministry of Culture, Community and Youth, Commissioner of Charities Annual Report 2019
We believe that donors should know how impactful their donation will be before donating to any charity.
Just like an investor should carefully understand a company before buying its stock, a donor should also understand the charity's financial situation before making a donation.
As a starting point, donors should look at the financial statements of charities they support.
Charities in Singapore make their financials public, by releasing financial statements and annual reports. These are a valuable resource to help donors get to know their charity's situation better.
This page provides a simple guide for how to get started in examining a charity's financials.
Financial statements can be daunting, especially with difficult technical terms. This guide seeks to simplify the process.
Start by looking at the charity's balance sheet, income statement and statement of cash flows.
Does the charity have much more current assets than current liabilities? If so, it looks like the charity can remain solvent in the short term
Has the charity made a positive net income? If not, the charity lost money in the past year.
Did the charity achieve a net increase in cash and cash equivalents? If so, this is a good sign, as the charity is accumulating cash for a rainy day.
Sources of Income
Look at the income statement of the charity. This tells us where the charity obtains the income needed to sustain its operations.
What proportion of income comes from voluntary donations, fundraising activities, investment income and government grants?
Are these sources steady (e.g. where the charity has a fixed corporate sponsor), or highly volatile?
Is it particularly reliant on a specific source (e.g. donations)?
How have these figures changed over 3 years, and why?
Expenditure & Costs
In the income statement of the charity, we can also see how the charity is spending its money under Expenditure.
Costs of generating funds - these include the costs of fundraising activities, etc.
Costs of charitable activities - these include the costs of the work to undertake charitable purposes.
Governance or administrative costs - these describe the other costs for governance and running the charity.
Different charities may categorize a type of cost differently!
Ask the same questions as above: Have the figures changed over the years, and why?
The Fundraising Efficiency is the cost of raising $1 of funds from the public. To do so, you can take the incoming resources from fundraising activities (found in the income statement) and divide that by the costs of fundraising, which is obtained from the charity's cashflow statement.
Generally, the less the charity spends on fundraising, the more efficient it is, and the more resources it can divert to its charitable purposes.
Proportion of cash going towards direct outcomes
From the income statement, try to see what proportion of expenditure goes to outcomes that benefit the beneficiary for example, programme costs, salaries of staff, or publicity costs that go to raising awareness (however they may be categorized).
As with the above, more spending going to charitable outcomes is generally better, as it means that more of your dollar directly goes to the beneficiary. However, charities providing different services (e.g. raising awareness vs providing care) will have different cost structures, and it might not be meaningful to compare their figures directly.
Benefit per Beneficiary
Look to the charity's annual report or other sources. How many people did the charity's programmes benefit over the years?
These give an idea an idea of the scale of the charity’s services, and put the numbers above (such as spending and income) in perspective.
The final vital sign is a remainder category for information that may be useful in understanding a charity.
To us, the ability to tap on a large pool of volunteers means that the many believe in the charity’s cause. This is a good sign of a charity worth supporting.
What plans for expansion does a charity have for the future? This may explain its actions (such as accumulating reserves, or increased spending)