Originally published by Forbes, featuring Frank Williamson.
We’re grateful to Forbes for the opportunity to contribute to this important conversation. Read the full below.
At first glance, nonprofits may seem quite different from for-profit businesses, but they share more similarities than many realize. Both types of organizations are often led by charismatic leaders who take calculated risks to guide their growth. They also face similar pivotal moments, such as a founder’s retirement or shifts in the external environment signaling the need for strategic change.
When for-profit businesses want to increase their profitability, expand their reach or fortify themselves against economic uncertainty, they often examine the prospect of merging with a like-minded organization. While nonprofit leaders may not instinctively think of mergers as an option available to them, they should — and for many of the same reasons as their for-profit counterparts.
Mergers: An Opportunity For Nonprofits
Merging with another nonprofit or a like-minded for-profit organization can help elevate a nonprofit’s ability to pursue its mission and stay resilient for the future. Here’s a closer look at what the process looks like, as well as some considerations that leaders should keep in mind.
The old perception of nonprofit mergers was that they represented a last-ditch effort for struggling organizations to put themselves on firmer financial footing. As time has gone on, though, nonprofit mergers have gained a more positive reputation as a smart strategic tool.
Merging with a compatible partner can benefit nonprofit organizations in numerous ways. By combining talents and resources, an organization can reduce its financial burdens, broaden its reach and increase its efficiency, thereby increasing its appeal to donors.
But the compatibility part of the equation can’t be overstated. Merging without fully exploring the rationale and establishing a clear game plan can undermine both organizations’ missions. Before considering a specific partner, nonprofit boards should gain a firm understanding of their organization’s current financial condition, pinpoint aspirations for the future and discuss organizational soft spots that might be alleviated by combining with the right partner.
Questions To Ask Yourself
If you’re considering a merger for your nonprofit, these questions can be useful conversation-starters:
1. How healthy are your organization’s finances?
You’ll need to understand your financial situation well enough to describe it to prospective partners in an easily digestible, fully transparent way. That includes explaining where your revenue is coming from, how you’re using it to fulfill your mission and where there might be areas for improvement. A partner organization isn’t looking for you to paint an unrealistically rosy picture. The success of a merger depends on both sides being candid about where they stand and what they can be doing better.
2. How can a partner organization support you in reaching your goals?
Whether your aspirations are ambitious or more bite-sized, you should consider how the right partner can help you achieve those goals faster than you could otherwise. Would combining organizations help increase efficiency by reducing administrative costs? Would it amplify your ability to impact your community? Would it open you up to new donors? Any of these can be good justifications for moving forward.
3. What does a like-minded partner look like?
It’s not enough to find another organization that has a similar or complementary mission to your own. One of the strongest predictors of a successful merger is when the two organizations operate in comparable ways and share common values. This alignment fosters workplace cultures that, with the right guidance, can be successfully merged into one.
Communicating The Value Of A Merger
Before any substantive conversations can happen with a potential partner, it’s essential to rally support within your organization for the idea of pursuing a merger. This can be easier said than done. There are several important groups of people to convince, starting with the board of directors, which has a fiduciary role to play in making decisions that benefit your organization.
Unlike mergers between for-profit organizations, nonprofit combinations typically don’t include an exchange of money, so any pitch to board members has to emphasize benefits that don’t include an influx of cash. If you’ve already conducted initial background research into a prospective partner and understand how a merger could make your combined organization more effective and resilient, focus your presentation on these strategic advantages to gain the support of your board.
Be sure to also begin communicating with staff members, volunteers and donors early in the process. While team morale is important for any organization, it’s even more vital at nonprofits, where staff salaries are often lower and supplemented by the efforts of unpaid volunteers who are inspired by your mission. Help your team understand the wisdom behind a potential merger and exactly how it would affect them.
Bringing any two organizations together under one roof is bound to generate a certain amount of conflict and tension. The key to making the transition process go as smoothly as possible is to establish a clear leadership structure with a single executive at the helm—meaning that the other organization’s leader will either have to step aside or take on a complementary role. Because much of the heavy lifting of the transition will fall to senior staff members, it’s important to closely involve them in the planning and to be responsive to their concerns.
Many nonprofits seek the services of a consulting firm to help manage the process of a merger, which can take roughly a year and requires digging deep into the inner workings of both prospective partners. A consultant can watch for red flags, foresee any potential roadblocks and manage the negotiation process to make sure the final deal is fair and benefits both sides.
Bottom Line
Nonprofits that merge are generally motivated by the desire to ensure that the services they provide today can continue into the future. If your organization is adapting to a shifting landscape or seeking to expand its impact, exploring a merger or acquisition can provide additional resources to help support your mission.