Most of us who have run nonprofit organizations have felt the panic of failure. Perhaps annually recurring grants suddenly stop coming; a key person in the office leaves, or worse, fails at his or her job; or a new competitor with a talented, charismatic leader emerges in our field. We wonder if these are the warning signs that our organization will not make it, and we go through sleepless nights and stress-filled days until we see our nonprofits through the latest hurdle.
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.
The Fieldstone Alliance recently published a report on its Web site called The Nonprofit Decline and Dissolution Report, based on an earlier work published in 1986. The report identifies six warning signs of decline for a nonprofit organization. They are:
- Loss of all or a significant portion of support from a key funding source.
- “Chasing dollars” syndrome.
- Sudden and dramatic expansion of services.
- Falling behind on financial obligations.
- Consistent inability to meet service and financial projections.
- Departure of key board and staff members.
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.”
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, and 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.
If a merger is not for you, time can allow for a calm, smooth close-down process which is important for your clients and your employees.
Jean Butzen, Mission Plus Strategy consulting, specializes in mergers and alliances in the Chicago area.