Prospect Research Q&A with A Researcher’s Diary
Dear Diary,
I want to take the top of this entry to thank all those who responded to the Google form with your questions and wanted to brainstorm ideas. I also want to take this time to give a heartfelt thank you to everyone who has been a Diary reader and subscriber. I appreciate all of you that write to me and share the blog posts with your colleagues. I see you all, and I just want you to know that you motivate me, and I hold all of your messages very near to heart. Thank you for keeping this space as a creative and thoughtful resource as we learn together.
- Joan
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Q1: Regarding the IRS 990, when do we refer to the document and what are the most important categories to pull from? Can you tell us the type of information you look at when you’re looking at a 990?
A1: In the United States, the Internal Revenue Service (IRS) requires U.S.-tax exempt nonprofits and Foundations to publish their most recent Form 990s or 990-PF annual returns (commonly called "990s") and all related supporting documents; This measure of reporting is to ensure a level of transparency and accountability. According to the IRS, every organization exempt from federal income tax under Internal Revenue Code section 501(a) must file an annual information return unless they qualify as exempt. It is also a form that allows prospect researchers to learn a little more about a nonprofit’s financials and grant distributions.
Please note that as of the last two years, many researchers have noted a delay in uploaded filings by the IRS due to a multitude of restraints that include budget cuts. The nonprofit and news source, Propublica, reported that the IRS “is behind on releasing nearly half a million tax records, known as Form 990s, for tax-exempt organizations. The delays, which began two years ago, are stymying access to key financial information that governments, the public and grant-makers use to evaluate the nation’s tax-exempt companies (Propublica, 2022).”
Let’s take a look at a Form 990 together, you can look at any form 990 as we discuss significant sections.
The initial reaction when you open a Form 990 is to note the reporting period. It is important to review the most recently filed form. In this case we are looking at the 2021 Form 990. Next, it is important to note how much in assets is being managed by the organization, which can be found in the Fair market value of all assets section. In this example, your analysis would read that as of 2021, X foundation held $955.6 million ($955,639,021) in assets.
As you move slightly down (just a little) you will find the line “25 Contributions, gifts, grants paid” this is where you learn the total granted by X foundation to organizations during this reporting year. Your analysis would read: X foundation granted a total of $33,442,140 to organizations during 2021.
Now scroll a little further, and stop at Part VI -A Statements Regarding Activities. In line 8a. you may be interested in knowing what states your organization “reports or with which it is registered.” In this case, X foundation is registered or reports in California and Massachusetts. This is also information that can be found on its LinkedIn or website, but since we are focused on the 990, it is recorded here.
Next scroll further to Part VII Information About Officers, Directors, Trustees, Foundation Managers, Highly Paid Employees, and Contractors. This is an important section that shares trustees, employees, your prospect’s name will be shared here, along with title and potentially their compensation.
Please scroll down to Part XIV Supplementary Information (Complete this part only if the foundation had $5,000 or more in assets at any time during the year – see instructions.) This is a very important section to always check because sometimes it is filled out and sometimes it is not. As stated in the form, this is where any managers of the foundation who have contributed more than 2 percent of the total contributions received by the foundation are listed. In simple terms, if your prospect is listed here, then you know that they have made a contribution either into their organization or one of the trustees has made a contribution into the organization as it is one of their charities of choice. Regardless of the reasoning, their name being listed is important.
To know the details of how much these prospects contributed into X foundation, we will see that soon. But in the meantime, as you slightly scroll down, you should come to the Part XIV Supplementary Information Grants and Contributions Paid During the Year or Approved for Future Payment. This is the list of grants paid during the reporting year. I like to list the largest gifts, so I skim through the entire list and just select the top 6 gifts, for example, and list recipient name, purpose of grant or contribution, and then amount. The significance of making such a list within your research profile is so there are examples of gifts granted by this organization.
Now scroll all the way down, it may feel like you are coming to the end of the 990, but you should stop at a section that shares Part 1 Contributors.
As you remember, there are individuals who have contributed more than 2 percent of the total contributions received by the foundation. This is where the exact amount they have contributed, and how they made the contribution, would be listed. So, for our example a couple that serves as trustees for X foundation has contributed a total of $30.9 million in 2021. For noncash contributions we know that this contribution was the value of a stock gift, and as you scroll slightly further the number of shares from a company will be stated and the estimated value, and/or date received.
This concludes the most high-level and detailed information that can be grasped from a Form 990. All this information is important to share in a research profile when your prospect serves on a Foundation as a director or trustee, or they have their own family foundation and steward the gifts granted, or your prospect works at an organization in a leadership role which means that they would be listed in the section that shares employees.
I hope that helps, and please message me if you have additional questions regarding 990s, I find them helpful but they can be difficult to maneuver so I appreciate your question because you want to find the facts in the maze of information.
Q2: Describe your moves management philosophy: ideal lifecycle percentages in fundraiser portfolios, recommended churn rate through lifecycle stages, etc.
A2: Although situations alter these generalizations - It should take up to 3 months to properly qualify a prospect - this should happen during the first meeting and 3 months allows for conflicts with scheduling. It should take 6 months to 1 year for a prospect to sit in cultivation, however, some prospects can completely draw this stage out, and that is when the fundraiser has to make some tough decisions as to whether it is time to disqualify or revisit the engagement plan or maybe there is a surrogate that could help with cultivation.
Moves Management is not one-size fits all which is why I recommend the prospect researcher speak with fundraisers on the portfolio buildout process so there is an understanding of where they have been and where they want to go with their portfolios. For example, if a fundraiser is new to an organization, their portfolio may be built up of recommendations from the past fundraiser/leadership, new prospects that need qualification, and then prospects in cultivation and stewardship. However, unless there has been a proper handoff process from the departing fundraiser to the new fundraiser to introduce them to prospects, said prospects that were in cultivation will now be in qualification. Majority of this new fundraiser's portfolio will have to be made up of people to qualify since they are new to the organization and have to create new relationships - "starting over".
So, I find it very important to know where the fundraiser is in their tenure at the organization. Another example, let's say the fundraiser is tenured and has a portfolio of 200 prospects - 100 in qualification, 96 in cultivation, and 4 in stewardship. We need to start strategizing on qualification because there is an issue with the balance of relationship building and qualification work. In this example, there are way too many prospects being cultivated and the number being qualified is only presumably increasing. I would recommend no additional prospects be added to a portfolio in this shape, and to start a plan on each prospect in cultivation immediately (fundraisers find it helpful to segment prospects in cultivation from "stalled" to "ready").
Churn rate is based on how many qualification prospects are recommended on a monthly-basis already. Questions to ask include: How has the current rate been going? What challenges have you experienced? What are your wins, and can we boost your capacity to qualify?
Q3: Hi Joan, I really liked your post on celebrating disqualification, and I’m wondering: Do you consider disqualification as a “no” for ANY giving, or just a “no” for major giving?
A3: Hi! Thank you for enjoying the post. I consider disqualification as a “no” for ANY giving because whether 3-figures or 8-figures, a gift is a gift. This is why nonprofits benefit from having both annual giving and major gift programs – there is opportunity for impact using any gift size. I could string a fundraiser along for my $100 gift similar to a $100 million gift; regardless, time matters and if a prospect is not interested, we need to celebrate letting them go. It may not be the right time to receive the $100 or the organization may not be the right recipient. We mainly hear of disqualification when it comes to major gifts, so I really appreciate where your mind went on this, but disqualification comes in all sizes and shapes because a prospect could be disqualified not for monetary reasons but for conflicting and morally inappropriate reasons that could or have caused harm.
Q4: Can you describe how ratings or ranges are developed?
A4: Prospect researchers create ratings based on hard assets (real property, income if available, foundation assets, company valuations, philanthropic giving, stock, and investments) and then soft assets (the ownership of a DAF, ownership of a foundation, family wealth, hobbies, board memberships, and overall career). A prospect researcher’s estimates are based on 5 percent of a prospect’s visible assets, assuming that the prospect could give 5 percent, over the standard 3 to 5 years. 5 Percent is a general marker for a major gift, and 1 to 2 percent is a general marker for annual giving.
We create ranges because it is an estimated giving range of a prospect's ability to give up to 5 percent of their wealth. There is an industry standard to our ranges, for example, $50,000 to $99,999; $100,000 to $250,000; $250,000 to $500,000 and so on.
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Keep being curious and asking questions, readers.
Until next time, August 15th!
