When it’s time to break the ice and open a discussion about closing down.
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.
- Closing Down the Right Way
- Just Tell Me: What’s the Right Way to Raise Money? Finding the Right Revenue Strategy
About the Author
Jan is a former editor of Blue Avocado, former executive director of CompassPoint Nonprofit Services, and has sat in on dozens of budget discussions as a board member of several nonprofits. With Jeanne Bell and Steve Zimmerman, she co-authored Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, which looks at nonprofit business models.
Articles on Blue Avocado do not provide legal representation or legal advice and should not be used as a substitute for advice or legal counsel. Blue Avocado provides space for the nonprofit sector to express new ideas. Views represented in Blue Avocado do not necessarily express the opinion of the publication or its publisher.