No Time to Sit Around and Hope for the Best
September 24, 2011
(Terence Cook, manager of the FMA Institute, the technical training arm for Fiscal Management Associates, LLC, has spent more than twenty-five years working in and with nonprofits. This is his first post for PhilanTopic.)
For nonprofit organizations, the past few years must seem like a blur. As the economy has lurched from one crisis to the next, nonprofits have had to deal with a litany of problems. Crashing reserves, falling donations, and unreliable funders, combined with a rise in demand for services, have all pushed executive management and staff to creatively adapt to a new fiscal reality.
Having already been swamped by one financial maelstrom, nonprofits are warily keeping an eye on ominous signs portending a new downturn. While the economy is still at something of a crossroads, economic data signaling stagnating growth and stubbornly high unemployment have created a "déjà vu all over again" moment for nonprofit leaders. As Olivier Blanchard of the International Monetary Fund recently noted: "The global economy has entered a dangerous new phase. The recovery has weakened considerably, and downside risks have increased sharply."
What can nonprofit leaders do if the recovery falters and the economy falls into another recession? While each organization will face its own decisions, one thing is certain: No organization, no matter where it is in its life cycle, can afford to sit around and hope for the best. Only through smart planning and effective decision making will nonprofits find a viable path forward. And while those paths can take many forms, one of them leads to consolidation.
But what does that mean?
1. Prepare for consolidation. For organizations with weak internal controls, poor reporting, and limited resources, a merger can be a nightmare. Whether the possibility seems far off or even unlikely, by strengthening their internal operations nonprofits can ensure that they are well prepared to leverage some of the benefits that consolidation brings (reduced costs, increased scope, expanded geographic presence). Poor reporting and a disorganized back office are warning signs to a potential partner and should be identified and resolved before the merger conversation even begins.
2. Embrace consolidation. Consolidation should never be seen as a
last-minute emergency step to save an organization in crisis; rather, it is an opportunity for two or more organizations with relative and complementary strengths to join forces and create a whole greater than the sum of their parts. While some consolidations may seem more urgent or make more sense than others, all consolidations should be driven by a desire to broaden revenue sources while lowering cost barriers for the merged entity. If you are a nonprofit leader, it is imperative that you not view consolidation as a sign of weakness or failure; rather, in ways too many to count, it is a sign of commitment to your organization's mission -- and to your skills as a leader.
3. Pursue consolidation. It takes two to tango, but you always need someone you can ask. Nonprofit leaders can no longer afford to sit on the sidelines and wonder what might happen if they got up to dance. Just initiating a conversation with the understanding that consolidation is a possibility is a great teaching moment for you and others in your nonprofit ecosystem. There are many types of joint venture, and most nonprofits will know which one is right for them. To get there, however, you need to rise above any perceived stigma attached to consolidation and openly and honestly initiate a conversation with your board and other stakeholders.
As with all things in life, there is no certainty as to where the economy is headed or how future events may affect the nonprofit sector. While it always seems as if someone is predicting an impending wave of consolidations in the sector, maybe what keeps us from embracing that reality -- and what may be our biggest barrier going forward -- is the misperception that we can outrun the wave rather than get on top of it. Consolidation is coming, but if you want to position your organization to succeed, you, as a leader, have to embrace, start to plan, and actively pursue it.
-- Terence Cook