This month I received startling news that a relatively well-known nonprofit in Chicago had closed. I had not even heard they were in trouble, let alone that they were closing down permanently. The news of their financial difficulties had been kept fairly close to the vest.
I was happy when the former executive director contacted me to ask if I would have coffee with her. I was anxious to find out what had happened and what I might learn from the organization’s experience that might be helpful to my own clients. During our conversation at the Brothers K in Evanston, my favorite coffee hangout, I learned of the valiant attempts she and her board made to fundraise and restructure their fifteen-year-old nonprofit in an attempt to save it. Unfortunately, these efforts ultimately failed. Here are the most important facts she shared with me:
- The nonprofit never had a good business model to begin with. It required a substantial amount of subsidy to support the social enterprise business. What had been a reasonable amount of fundraising in a good economy was untenable in a terrible economy.
- Rather than look at the business model and make serious corrections over the years, the board continued on as they always had.
- Though the executive director, recently brought on by the board, could see the problems with the business model, it was too late to fix its financial problems or radically restructure.
- Near the end, the organization made multiple attempts to merge with other nonprofits, but the negative financials told the story and could not be overcome, and these efforts failed.
- Hard-fought attempts to raise money met with mixed results; the organization ran out of cash. Rather than continue to mount even more debt, the board voted to close the organization sooner rather than later.
The former executive director laments the decision by the board to close the organization. Could a few more months of fundraising have turned things around? They will never know. Certainly there are many organizations in a similar situation, wondering: Are we next? If so, what can we do to prevent the same outcome? Closures can be inevitable, and certainly in this case it seems that the cards were laid out a long time ago. But could the organization have done more to positively position itself for a merger? If there is one message I try to get across to nonprofit leaders, it’s this: If you believe you are headed toward a merger, start the process sooner rather than later. The stronger your organization is financially, the better your bargaining position will be. Every day you wait, the value proposition of your organization can weaken and other nonprofits will be less interested in merging with you. By initiating a merger, you are not committing to completing a merger. It doesn’t cost you anything to have strategic talks with a few key nonprofits, or to even sign a letter of intent to negotiate; you can always back out if by some miracle you win the lottery. But if the big grant does not come through and you are out of cash, then the merger may be what saves your programs and operations.
Think about it. Would you really rather completely shut down than continue your programs under another organizational banner? Looking into the face of this executive director, I could see the sadness over the demise of their social impact. It’s the mission that matters.