When we think about the important work we do at a nonprofit, it’s hard not to think that closing down is the ultimate disaster. But sometimes a lack of money or energy raises the question for us. Here at Blue Avocado, where we turn things on their heads to get a fresh look, we believe that just thinking about closing can be freeing: A chance to re-think not only our organization, but how best to utilize the human and other resources we have. When an organization becomes a heavy burden for staff, the board, and volunteers, it’s time to look at options.
It’s very hard to break the ice on a board and open a discussion about closing down. The nonprofit board of directors is responsible for the organization’s future: whether to grow, change, downsize, merge, evolve, or close. And although nonprofit board members don’t have personal financial stakes in the organization, they have invested their time, their energy, their financial contributions, and their hearts.
At the same time, few nonprofits are destined to thrive for centuries . . . there may be a time for closing and for turning to new ventures.
For many nonprofit boards, this is the unthinkable: closing down or going out of business. There may be a crisis, or serious warning signs, or simply a lack of energy in the organization. In other cases, conditions may have changed and the organization is no longer viable, at least in its current form. Whatever the long-term causes may be, a board may find itself wondering whether to go out of business, what the implications will be, whether the organization can still be saved, whether the organization should choose bankruptcy or dissolution, and how to go about closing down.
In most cases the board finds itself facing an obvious crossroads. Perhaps the organization has lost all its funding or a substantial funding source; perhaps key staff have departed; or perhaps the organization has lost a valuable facility or donated service. Other indicators may be a sudden awareness of significant debt or unpaid payroll, a scandal or seriously damaged reputation, or a serious legal challenge.
By the time the board arrives at this crossroads, there’s usually a history of less-than-successful efforts to turn things around. For example, in the previous year the organization may have laid off staff, cut costs, or undertaken a new fundraising drive. As a result, board members often enter the discussion tired or resentful. It’s not easy for such a board to find the strength to consider all the strategic options objectively, to pursue possible mergers, or to manage a bankruptcy process well.
One important step is for the board to describe, or “declare,” the situation a crisis or emergency, or at least an “urgent and unusual situation.” Such a declaration helps board and staff members to feel that it is appropriate to hold extra or unusual meetings, to take unusual measures to cut costs, and to ask for financial or political help. Declaring a crisis also gives the board a chance to see if there are supporters who step forward to help. Perhaps most importantly, declaring a special situation gives people permission to talk more openly about problems facing the organization and to think more creatively about what options exist.
Some organizations create a special options task force of a few board members or a board-staff team that is charged with developing strategic options. The task force can talk with key creditors, key funders, allied organizations, and staff. The task force may consider these strategies among others:
- Buy time to consider options at a more deliberate pace. Examples: A job training program may be able to obtain a delay on loan payments, or ask a government funder to renegotiate contracts to allow the organization to keep funds although services have not been delivered. In a few cases a donor may be willing to make an “emergency grant” to keep operations going while the board investigates its choices.
- Restructure services and operations in a way that will permit long-term viability. Examples: An under-enrolled child care center may be able to combine classes, reduce staff, and eliminate part-time care options in order to operate on a break-even basis. A membership organization may dramatically reduce member services and refocus attention on advocacy, anticipating lower membership income but lower costs as well. A homeless shelter may spin off a money-losing job training program to an employment organization that can run it more cost-effectively. A nonprofit art gallery may close the gallery but set up arrangements with two coffeehouses that will provide free exhibit space.
- Find a merger or acquisition partner who will take over services, staff, location, and other matters. Example: An after-school tutoring organization might become a program or department of a nearby community center or church.
- Close down. Example: A neighborhood newspaper may find it is simply running out of steam. The board decides to cease publication, and gives the copyrights and name rights to a neighborhood association.
Whatever choices are made, the board will need to find ways to involve the staff, funders, clients, patrons, and others appropriately in the decision making. Clear communication is also crucial ensuring that the decisions — whatever they are — can be implemented successfully.
We are seeing other small non profits slide away into oblivion all around us and we are struggling not to follow that path.
Interesting! I like this article !
never shut down a non profit i.e.
Blue Cross Blue Shield
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This is the most informative part "By the time the board arrives at this crossroads, there's usually a history of less-than-successful efforts to turn things around. For example, in the previous year the organization may have laid off staff, cut costs, or undertaken a new fundraising drive. As a result, board members often enter the discussion tired or resentful. It's not easy for such a board to find the strength to consider all the strategic options objectively, to pursue possible mergers, or to manage a bankruptcy process well." regards
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We are seeing other small (and some large) non profits slide away into oblivion all around us and we are struggling not to follow that path.
Its tough call to close down an NGO. I’ve worked in Australia for a few non profits and its tough. I requested to go on a small pay package because I was working many hours (planting trees). Eventually after 3 months of volunteer work they still didn’t get enough funding to pay even the people that was supposed to be on a wage. Anyways a great read into why non profits are closing down.
Thanks alot for this.
Once an organization has come to the difficult decision to shut down, where can it go for practical, step-by-step, directions on how to do so in an orderly fashion. Also, what are the key accounting differences between merging non-profits and dissolving a non-profit and moving the assets to a fund under another non-profit?
Non-profit organizations are not always on the same principle. Some work, some don´t. Depends on what country you live in. Some have more tax freedom and some may still want to make money from them. We have to consider other factors.
It is hard for a non-profit organization to receive enough support and funding. However, the first thing to do would be utilizing human resources, and trying to engage people who are interested and can afford non-profit activity. This type of organization definitely needs a leader or group of leaders who a willing to devote their time and effort to this job.
Jan, Once an organization has come to the difficult decision to shut down, where can it go for practical, step-by-step, directions on how to do so in an orderly fashion. Also, what are the key legal and accounting differences between merging non-profits and dissolving a non-profit and moving the assets to a fund under another non-profit?
It’s very hard to break the ice on a board and open a discussion about closing down. It is true. I agree with these words.
Debbie Cutchin, consultant
I completely agree with Amy. MOST of the nonprofit "super agencies" (ie, Support Centers, state-based nonprofit orgs., and to some degree the consultants who specialize in nonprofits have been ignoring the obvious. I work with medium and small size nonprofits and it is VERY difficult to even now get them to consider what they think are radical ideas such as combining services with another nonprofit, considering income generating ideas, or even working with their creditors to ride out this storm. While I do not always believe that the private sector managment ideas are directly appliable to nonprofits (especially the very small ones who in many ways look like and act like family owned businesses), I do think the general "survivor" mentality is more acute. I would welcome the chance to work with any nonprofit who is facing (or may actual think they are facing) this challenge–but how do I find them? Debbie from Jersey
I am the President of a small non-profit such as the one you described in your email. Toy Rescue Mission (www.toyrescuemission.org) has been in existence for 18 years, but is now struggling to survive this current economic crisis. We are seeing other small (and some large) non profits slide away into oblivion all around us and we are struggling not to follow that path. But, our resources for funding are drying up!
Because our services are so unique, it is difficult to imagine HOW we might combine services with another non profit. I am not opposed to the idea, but do not see a way for it to happen. We have been considering income-generating ideas for a number of years now. But, because we are 98% volunteer-run, we shy away from those ideas that would require the commitment of our volunteers–mostly because many of them either already hold down full-time jobs (elsewhere) and are volunteering in their "spare time," or because, if we make the commitment and the volunteers fall through, then we either have to cancel the event or it falls on the few most loyal to carry through. We tried earnestly for three years to plan a large event that would have generated considerable income, but had to abandon the idea when we couldn’t gain enough workers (volunteers) to commit to it. We also recently had what we considered to be a GREAT idea/event that could feasibly generate "life-saving" funding and support and become an annual "signature" event for us. But, the idea was "shot down" because the main players were to be students in public schools, and the school district policies forbid them to raise funds for outside sources.
So…now I am sitting here reading in Blue Avacado about how to close down a non profit "decently and in order." In your email you stated you…"would welcome the chance to work with any nonprofit who is facing (or may actually think they are facing) this challenge…" Here we are…you have found us…so my first question has to be…what do your services cost? We are looking at closing our doors at the end of May (09) if something radical doesn’t happen and soon!
This isn’t Debbie, but Jan at Blue Avocado. I couldn’t help but feel for your situation, and to be irritated again at the ease at which consultants and foundations say that people should merge. There are seldom good fits for mergers. Your comment shows exactly the situation that so many valuable volunteer organizations face. I hope that Debbie responds to your note. Jan
It sounds like you are doing some fine critical thinking about the situation. Yes, organizations like yours that are almost entirely reliant on volunteers are really at risk when it comes to miracle creating!! And school districts are often more trouble than they are worth in terms of helping their communities….But, all is not lost.
Tell you what. I will look around about your enterprise and try to see what I might suggest. No cost in looking around and initial talks. And, I am a sucker for lost causes so my fees are quite modest–I would not charge you more than $25/hour for my time.
If that is agreeable to you, let me know and I can do my work to start. The best to reach me is Cutchin@comcast.net and/or 732-274-1562 (NJ) Where are you located?
Today (2/20/09) I have four earmark requests going in from three orgs which are due today so…if you reach out I will start by Monday. Hope that is soon enough.
Just curious if Debbie was able to help your organization? It would be interesting to know what happened. But if you did have to close your doors – I wish you the very best.
This is very helpful- Our Board of Directors has been in denial for some months now, despite my (exec. director’s) repeated warnings about the worsening financial situation-
The key ideas of declaring a crisis and establishing a task force are excellent ones. In my 22 years of running a museum, I have never faced this difficult of a challenge– and this sounds like a very reasonable approach.
This article may actually allow me to get to the other side of my insomnia!!
Andy Robinson (Grassroots Grants and Selling Social Change Without Selling Out) has been musing on this topic and led an open discussion of it at the Alliance for Nonprofit Management conference in Atlanta 2 summers ago. His provocative idea was to wonder if we nonprofit assistance providers might think of our role, sometimes, as hospice care workers–what is our best “end of life” work. This discussion was really good, and a relatively untapped topic. The state association reps reminded us or all the workshops out there on Starting Your Nonprofit, but nothing about turnarounds or end-of-life. And at ChangeMatters, I have a tool that suggests options for action in times calling for a turnaround. Speaking of the “death” of a nonprofit is a taboo that I think we “capacity-builders” ought to break. Thanks for bringing it up.
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