Thinking About Going Out of Business
by Jan Masaoka
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 needed, 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 if so, in what ways 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, last year the organization may have laid off staff or 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 declare the situation a crisis or emergency, or at least an "urgent and unusual situation." Such a declaration allows board and staff members to hold extra 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 who are charged with developing strategic options. The Task Force can talk with key creditors, key funders, sister organizations and staff. The Task Force may consider these options, 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 were not 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/or operations in a way that will permit long-term viability. Examples: An under-enrolled childcare 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 a network of artists that can help its members exhibit in coffeehouses.
- 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 to ensuring that the decisions - whatever they are -can be implemented successfully.
Original publication date: 06/28/2004
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