Mission + Strategy = Social Value

"A Trip Down Merger Lane"

Today’s economic troubles have taken me down memory lane. It was just after the economic turmoil following 9/11 that my own nonprofit came to terms with deciding to seek a merger for our organization. I was the president of a supportive housing corporation in Chicago that wanted very much to grow. But because the stock market had declined so much, our local foundations and corporations had significantly cut their funding to most nonprofits, including our organization. Government funding, too was cut due to losses in the tax base. Not only was it impossible to grow because there was no unrestricted capital to do so, but we were having trouble raising the funding just to maintain our existing portfolio of 1,000 units of housing for the homeless.

 

Yet, I knew that it would be possible to expand our efforts for the homeless if we could think outside of the fundraising box – by instead seeking a merger with a larger nonprofit. It was a revolutionary idea for a relatively healthy nonprofit to seek a merger simply for the sake of growing its housing and services. But that’s what we did.

 

Since our merger closed in 2005, many positive things have happened to our former organization’s assets. Our trademark housing and services expertise is being shared with markets around the country where our partner does business. And our housing portfolio, much of which was old and ready to be re-financed, has been preserved and is in the process of being renovated by the (much larger) succeeding merger partner.  Our former mission continues and our assets are secure, meaning our 1,000 clients have a place to call home and the services they need to maintain their housing – which is so important in these difficult economic times. Now, almost three years after the merger closed, it seems as if we were prescient in seeking the merger given the fact that we are now in the midst of the worst financial re-structuring since the Great Depression. Certainly not everything about the merger has been perfect, but given the choices it still seems like it was the right decision.

 

I wonder, are you a nonprofit leader whose own nonprofit is in the same position that mine was five years ago when we started the merger process? Is yours a mid-size agency that is strong and that wishes to grow, but you don’t have the financial capital to do so? Is your unrestricted financing shrinking? Are you having difficulty raising the quality of your back-office services because you can’t afford the investment? Is it time for you to think about seeking a full or partial merger partner for your nonprofit?

 

"The Warning Signs of Organizational Failure"

Most of us who have run nonprofit organizations in our career have, at one time or another, felt the panic of failure. When annually recurring grants suddenly, and with little warning, stop coming; when a key person in the business office leaves, or worse, fails at his or her job; when a new competitor with a talented, charismatic leader emerges in our field, we are apt to wonder whether or not these are the warning signs that our organization is not going to make it. We go through sleepless nights and stress-filled days until we see our nonprofits through the latest hurdles. But what if the hurdles don't stop coming or worse, our organization can't make it over the hurdles any more?

When is it the right time to consider closing a nonprofit organization?

There are so many crises in the day-to-day operation of a nonprofit organization that it can be difficult to tell the difference between the normal state of affairs and an actual disaster. How can a nonprofit CEO or a board of directors tell the difference? This has not been an easy question to answer until now.

The Fieldstone Alliance recently published a document on its web site called The Nonprofit Decline and Dissolution Report which identifies six warning signs of decline for a nonprofit organization. They are:

1.  Loss of all or a significant portion of support from a key funding source
2.  "Chase dollars" syndrome
3.  Sudden and dramatic expansion of services
4.  Falling behind on financial obligations
5.  Consistently unable to meet service and financial projections
6.  Departure of key board and staff

As the report states, "The point at which a nonprofit organization's mission is 'to survive' is the point at which the organization should consider going out of business."

Is this your organization's actual purpose?

It's important to state that these six factors are not an assurance that an organization will fail, but they could be leading indicators.You must confront the facts of your situation regardless of whether your nonprofit is closing or not, the sooner the better. Time gives you better options including preserving your organizational assets through a merger. Once the situation spins out of control it can become too late even for a merger.

And if a merger is not for you, time can allow for a smooth close-down process which allows you to transition your services to other nonprofits. This will be important for your clients and your employees.