When You Should Consider Merging a Nonprofit
You might think of big businesses and billion-dollar takeovers when you hear the term “merger,” but for-profit corporations aren’t the only organizations that can benefit from mergers. Many nonprofits use mergers to strengthen their organizations. Ultimately, nonprofit mergers can help an organization better fulfill its mission.
Are you considering merging with another nonprofit? Let’s take a look at why an organization might want to merge with another to help you understand if it’s a good idea for your nonprofit.
Reasons a Nonprofit Merger Would Be Beneficial
Ongoing Financial Struggles or Instability
Organizations that have regular financial struggles or face ongoing financial instability can’t meet the goals of their mission. A struggling nonprofit might have to close its doors if it can’t find the money to operate.
A merger, then, could be a good solution to ongoing financial struggles. There are two ways a merger might help alleviate your financial issues:
- Being absorbed by a larger organization.
- Merging with a similarly-sized organization with a similar mission.
Joining the ranks of a larger nonprofit could generally give you access to more funds and resources you might not have in a smaller organization. Being part of a larger nonprofit could be the stability your organization needs to meet goals and help your community.
But you may not want to be absorbed by a larger nonprofit. In this case, you might want to consider merging your organization with another of the same size that shares your mission or goals. In some cases, your two smaller organizations may be able to overcome financial struggles simply by being a larger–and more recognizable–force in the community.
There’s a Lack of Sustainable Funding and Resources
Does your organization struggle to attract repeat donors or find other sustainable sources of funding?
If you’re a small organization, it could be your size. Some donors shy away from a smaller operation because they’re unsure of the impact the organization could make. By joining forces with another organization through a merger, you produce a larger overall nonprofit. A larger organization might have more appeal for donors, which could give you access to more fundraising opportunities.
In addition, your larger organization will likely have more resources available, including:
- More staff
- More volunteers
- Access to a wider donor network
- Shared organizational resources
- Additional funding sources
Your larger organization might be able to reach new donors, create a diverse fundraising network, and secure long-term funding better than a small organization. It could also help make long-term nonprofit financial forecasting easier for your accounting team.
Operational Costs are Breaking the Bank
Nonprofit organizations have a wide range of costs they need to operate. For example, most nonprofits have expenses such as:
- Leasing commercial office space
- Electricity, internet, and other utilities
- Training staff and volunteers
- Advertising and marketing
- Fundraising events or campaigns
These operational costs can quickly add up and could cause financial issues for your organization.
An easy solution could be to merge with a sister organization or one with similar goals and missions. As individual organizations, both have to pay for office space and utilities. By merging, the organizations could share many operational costs.
Overlapping Programs, Services, and Missions
Two nonprofit organizations that operate in the same space might be competing for resources. This leads both nonprofits to suffer. Even more, this could harm the impact on your community or those who benefit from your mission.
A merger between two nonprofits with the same goals, missions, and services removes competition. Donors won’t have to decide between donating to one organization or the other, which can help the merged organization have a bigger financial impact than the two nonprofits had alone. Likewise, nonprofits serving the same mission might reduce operation costs and improve efficiency by removing redundancies in the community.
Greater Capacity for Impact
A strategic merger between nonprofits could help advance your mission. As a larger organization with more efficient financial and administrative operations, you’ll have a greater capacity to impact your community.
Where two separate organizations may be able to make small impacts, combining forces could give you the financial backing you need to be a greater force for good.
Weigh Your Options Before Merging a Nonprofit
There are obvious benefits to merging nonprofits, but is it right for your organization? There are many things to consider before merging with another organization. You’ll need to go through a careful due diligence process to ensure you’re making the right choice for your nonprofit. This includes carefully analyzing:
- Financial audits
- Legal reviews
- Comprehensive analysis of benefits versus risks
Additionally, it’s important that you–as a nonprofit leader–involve the organization’s stakeholders in the decision-making process. Your board of directors, nonprofit staff, and donors (especially major or repeat donors) should all have a say in the merger decision if you want to have a successful potential merger.
One of the biggest things to think about when considering a merger is your organization’s financial and tax status. It’s important to partner with a trusted accountant so you’re sure you understand the financial implications of a merger, such as The Charity CFO. We leverage our experience as nonprofit accountants and financial experts to help nonprofits consider their financial options–including potential mergers.
If you’re considering a merger for your nonprofit, schedule a call with The Charity CFO for financial help and advice today.
