Charities and their Management Expense Ratios
So far, we have collected over $250 in donation money though our "Links for Charity" fundraiser. What exactly is the "Links for Charity" fundraiser? It's basically a way for Million Dollar Journey to give something back to the community by selling ad space to various sponsors and donating all proceeds to registered Canadian charities. Without sponsors like RedFlagDeals, Mortgages, and Cash Flow 101 Players, this charitable program would not be possible. Would you like to participate in this charitable program and be part of the list indicated on the right hand sidebar? If so, you can contact me here.
Anyways, back to the task at hand, this article will deal with calculating the management expense ratios of charities. This will help determine if the charity in question is using your donation dollars efficiently. The basic premise being that the charity should minimize their internal expenses and maximize the amount of money that goes towards the intention of the charity.
What are these Management Expense Ratios (MER)?
- Yes, same idea as a MER for a mutual fund, but for a charity. A charitable organization, like a company, will have supporting or admin expenses like salaries, supplies, advertising and rent. The goal is to find charities that keep their MER as low as possible to ensure that they're optimizing the use of the donated dollar.
How do I find the MER of a charity?
- Most reputable charities will disclose their financial statements to the public, I usually find them on their respective website. Some charities will disclose their MER on their financial statements, but most won't. You'll have to calculate them on your own. More on this below.
How do I calculate the MER?
- In their financial statements, there will be field that indicates their management and general expenses for the year, then another field that indicates their income. Sometimes they have their management and general expenses divided into separate categories like salaries, advertising, general admin, travel, or fees.
- Simply divide the management and general expenses by the income and you'll come up with a percentage, which is the management expense ratio. Some people like to consider fund raising costs as an expense for this calculation, but I consider this as more of an investment to obtain more donation dollars, so I personally leave them out of the calculation.
Based on 2006, these are the management expense ratios for a few popular registered charities.
|Cancer Society (NL)||$143,395||$2,252,841||6%|
|Alzheimers Society (Canada)||$890,636||$11,391,494||7.8%|
|Janeway Foundation (NL)||$159,095||$2,992,663||5.3%|
As you can see, not all charities are created equally where some make use of donated dollars more efficiently. Make sure to do your own due diligence before donating to a charity. What's your favorite charity? Have you calculated the MER yet?