Category: Nonprofit Posted on Apr 02, 2015

Should Our Non-Profit Continue to Exist?

In the wake of an unexpected defeat such as losing a significant grant or a government contract, a nonprofit board of directors may be asking itself “should our nonprofit continue to exist?” In the current steep recession organizations find that either they can’t meet financial obligations or they consistently miss financial goals and projections. Confronting the unimaginable at the appropriate time makes the difference between a graceful demise or chaotic retreat. Better yet, with proper forethought, a complete financial turn-around could take place.

A Graceful Demise Provides The Opportunity For:

  • Smooth client, program and staff transition;
  • Buy-in among board, staff and funders;
  • Organized wind-down of the business;
  • Preservation of the organization’s legacy and reputation of its board and executive staff.

Chaotic Retreat

When the local paper reports that staff and clients showed up one day to find locked doors – a chaotic retreat has occurred. Some other signs include:

  • Survival, rather than mission driven decisions;
  • Missed payroll and growing accounts receivable;
  • An uniformed board;
  • Frantic fundraising efforts;
  • Impulsive staff and programs cuts;
  • Key staff departures;
  • Rampant rumors of the organization’s collapse;

Is A Financial Turn-around Realistic?

Proper planning affords a board the breathing room to address four key questions, which actually can result in a leaner more effective surviving organization:

  • Can we identify new revenue streams without chasing dollars – that is, without manipulating programs and services to meet funding criteria, rather than staying true to our core mission?
  • Will targeted cuts, which, may involve lay-offs, allow us to refocus on financially sound programs and services? (A recent United Way study confirmed that nonprofits are developing streamlined business models to survive the current recession.)
  • Is this an opportune time to actually expand successful programs?
  • Can we identify a strategic partner by looking for opportunities to merge, affiliate, collaborate with, or transfer programs to an organization with a similar mission and synergistic programs? Nonprofit observers are seeing far fewer mergers than predicted in today’s tough times. Funders endorse mergers as a way to conserve resources. But experience shows that successful collaboration is not as easy as it seems. Issues such as corporate culture, control, staffing, communication and legal liability must be handled carefully.

Even if a shut-down is unavoidable, a chaotic retreat is not. The board of directors must get realistic answers to the following critical questions:

  • What are our assets and liabilities?
  • Can we pay our debts as they come due?
  • Do we have assets (such as real estate or unrestricted investments) that can be sold?
  • What is our burn rate – that is, how much cash do we need to meet payroll and other basic operating expenses, and when will we run out? After taking a sober look at these issues, a board may determine that a financial turn-around is not in the cards, and they may choose to close the organization’s doors.

Bruce Stanger

My litigation experience includes family law, divorce, product liability, construction law, professional negligence, shareholder disputes, legal malpractice, and general commercial litigation.