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Guest column: Mergers not quick fix for nonprofits' finances

Saturday, December 04, 2010  
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By Pam Clark Reidenbach
SPECIAL TO RRSTAR.COM
Posted Dec 04, 2010 @ 05:03 PM

Community leaders are putting pressure on nonprofits to merge as a potential cost-saving measure, but mergers may not be the solution for nonprofits facing financial problems.

LaPiana & Associates suggest two core beliefs create this trend: 1) The nonprofit sector has too many organizations, and 2) most nonprofits are too small and inefficient.

In this scenario, merging could eliminate the intense competition for limited funding and create economies of scale, increasing efficiencies. This thinking is oversimplified. Mergers can be expensive and risky, and the problems they purport to solve may not even be real problems.

We’ve heard it over again — there are too many nonprofits. But are there? Perhaps the issue is there are too few dollars to support the vital services needed in our community. Government relies on nonprofits to serve citizens that lack the ability to pay for desperately needed services. They rely on nonprofits to provide high-quality, cost-effective services.

In tough economic times, they reduce funding when agencies are experiencing an increased demand for services. Mergers cannot counter this trend. Nonprofit business models depend on support from these sources, and without it they risk closure.

What about the opinion that there are too many small, inefficient nonprofits providing similar services? Chances are agencies are responding to a need in a specific geographic area or under a specific philosophy or mission.

A Donors Forum shows that 67 percent of Illinois nonprofits experienced increased demand for services in the past 12 months, yet 41 percent had decreased ability to meet that demand. Why would we talk about reducing the number of nonprofits when we cannot meet the overwhelming need?

Some say the problem is too many nonprofit corporations with duplicate administrative structures. Perhaps this is the most plausible argument, but to think that a merger is going to have immediate cost savings is a mistake. In the short term, mergers require new money for legal counsel, consultants, and costs including design, signage, severance, moving and systems integration. The hope is that the merger will save nonprofits money by eliminating a portion of the administrative staff. Chances are, the cost to manage a more complex organization will require more professional-level, expensive staff.

The value in any merger should be the ability to better meet mission and improve service delivery. Some local organizations that have recently merged should be commended for their foresight, courage and mission-focused decisions. These mergers will improve service delivery by providing comprehensive programming, expanding opportunities for grant funding/contracts and strengthening their ability to advocate on behalf of their clients.

Mergers create an opportunity for making difficult decisions that include layoffs, restructuring, new fundraising strategies and enhanced programs attractive to funders/donors. If nonprofit organizations are under financial stress when they’re going into a merger and do not resolve those issues, they will find themselves in the same position after the merger has taken place. Strong leadership, effective governance, sound business practices and demonstrable results are vital whether nonprofits merge or not.

The good news is that mergers can offer a stronger, more sustainable structure to weather economic turmoil. A blend of strong board talent can improve fundraising. Combined leadership can provide additional professional perspectives and offer a broader experience in problem-solving. Organizations may see expanded program offerings, and more professional staff resulting in reduced risk.

Mergers can be a strategic option, but they are not a quick financial fix. Nonetheless, all nonprofits should have strategic discussions about the future of their organizations. Potential partnerships — no matter what form — should be a part of that mission-based conversation.

Pam Clark Reidenbach is director of the Northern Illinois Center for Nonprofit Excellence at Rockford College.

This story appeared at http://www.rrstar.com/gnt/whatyouresaying/x1145376334/Guest-column-Mergers-not-quick-fix-for-nonprofits-finances on December 4, 2010.


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