Knowledge and Insights

Nonprofits are finding it increasingly difficult to operate under the continued financial uncertainty and regulatory pressures of the last several years. Many have reached the point where they have begun to assess, or already take advantage of, alliance or merger opportunities. As happens in most situations, those that proactively plan, for either an evaluation or the actual process of combining their nonprofits, avoid crises. While some managements, understandably, are reluctant to consider merger scenarios, the many potential benefits to an organization and those it serves should be analyzed before dismissing the idea. An alliance or merger could result in several positive outcomes for your nonprofit.

First, the process may enable your organization to refine or expand its mission, thereby serving more individuals or creating a unique service in your region. A unique mission could position you to bring in more funding dollars as you may no longer be competing against the same organizations as before. It may also afford the opportunity to take advantage of new grants for which you would not have qualified previously.

Second, in addition to working together to assist more individuals, economies of scale could help your newly-formed organization save substantially on expenses. Combining resources helps eliminate redundant services, supplies and staff positions, and decrease overhead costs.

Perhaps one of the most appealing reasons for merging is funding diversification. Many nonprofit organizations rely on one source of funding or donor type, such as government grants, for a majority of their revenue. Some realize the peril to their viability from having one source of funding in today’s economic climate. Indeed, for many, government money is already becoming increasingly scarce, as are dollars from private donors. Alliances and mergers present a great opportunity to tap into other funding sources to ensure you remain equipped to serve your constituency.

Of course, many nonprofits can face difficulties even upon merging. Regardless of how much effort is put into ensuring that your organizations are the right fit for one another, there are bound to be challenges when blending two different office environments and business cultures. We recommend that you engage board members from both organizations to provide input on the various decisions that may affect the combined organization.

Another benefit of a merger is that it could provide an opportunity to refresh or even change the rules governing your board. While it is not necessary to wait for a merger to change your governance policies, many organizations use them to institute minimum funding requirements for each board member, a threshold amount that the member must bring into the organization through outside solicitations or personal donations. Your board members are the tentacles into the community and the organization’s ambassadors. One of their primary responsibilities is fundraising. Emphasis in this area can help your organization ensure that it meets funding goals and that your board members are contributing to its financial success.

Lastly, a merger provides a great opportunity to reinvigorate your staff. Involving them in the process not only increases its pace, but also their loyalty. This can be especially helpful when the organization’s finances adversely impact staff benefits, such as healthcare or salaries and, in turn, morale. By allowing your staff to help fix the financial situation, you empower them to see how things can and are changing for the better. It is also important for your staff to meet the other organization’s staff members, so planning events where they can be introduced to one another – and the work they do – can be key to ensuring a comfortable meshing of cultures.

Mercadien’s Nonprofit Services Group has extensive experience assisting nonprofits with the evaluation of the cost and strategic impact of a potential alliance, and with guiding them through the actual merger process.