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Double strength: Merging can make your not-for-profit twice as effective

January 16, 2012

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The weak economy has been particularly hard on not-for-profits. Reduced government funding and donor support and stiff competition for grants have forced some to even question how long they’ll be able to remain in operation.

If your organization is struggling and other not-for-profits provide similar services in your community, you may want to consider a merger. Teaming up with another not-for-profit enables you to pool resources, cut costs and possibly better serve your constituents.

A hard decision

The decision to merge isn’t an easy one to make. But if your organization has experienced steady declines in grants and donations, it’s worth considering. Duplication and overlap of services may be another valid reason to merge. Bringing organizations together can be a powerful way to build unity, achieve objectives faster and use funding more efficiently.

You might also consider joining with another not-for-profit to gain access to a larger skill set. Perhaps another organization has an outstanding and dedicated staff, while you have excellent fundraising skills. Combining forces may enable you and the other not-for-profit to provide better services and maximize capabilities.

Are you ready?

If you’re mulling a merger, think about what you really want to achieve. Develop realistic objectives stated in measurable terms, such as striving for a 25% increase in donations or an expansion of services into an adjacent community.

You also need to assess your readiness to be a partner. Assemble a committee of managers, board members and advisors to discuss potential financial, legal, public relations and other implications of a potential merger. Invite critical outside stakeholders, such as major donors, to provide input. If you’re going to lose funding because a merged entity would deviate from a major funder’s goals, it’s better to know before you make your decision.

In general, not-for-profits are better merger candidates when they have stable management, including a strong relationship between the executive director and the board and a good handle on their strategic challenges. not-for-profits that are growth-oriented, with a history of successful risk-taking, also may be better candidates.

Recognize potential obstacles

Naturally, not-for-profit mergers involve considerable risk of stakeholder resistance and other hurdles. For example, it may be difficult for staffers of the two organizations to set aside differences and work in the spirit of cooperation. Fears, egos, politics and personal concerns are all likely to be visible as everyone struggles with making major organizational changes.

Funders, program partners and community leaders also may object. Good communication can help alleviate much — but not all — resistance. Legal obstacles are another possibility. Many states have specific procedures that must be followed and forms that must be filed when not-for-profits merge. Further, you may need to get consent from donors to legally transfer gifts or grants.

Finally, consider just how much time and other resources are needed to successfully merge two entities. Depending on the size and complexity of the organizations, a merger can take as long as two years to complete. The process also will involve additional costs, such as for consultants and attorneys.

Guide through the process

Whether the idea of merging is new to you or you’ve been approached by another not-for-profit and are ready to take the leap, talk with your accountant, attorney and other advisers experienced in handling not-for-profit combinations. They can guide you through the complicated process, including due diligence, negotiations and integration, and help ensure that your merger will improve your not-for-profit’s long-term viability.

For more information, contact Ann Knerr at [email protected]

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

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