It is so difficult for all stakeholders when the non-profit that does great work in the community has to struggle to maintain basic service. The kind or quality of non-profit services usually diminishes so the clients suffer. Staff become discouraged and de-motivated. The non-profit management is spending an inordinate amount of time doing damage control.
Here are some indicators that tell the non-profit board it is time to conduct a thorough evaluation of the viability of the organization. Then, there are options to consider.
Indicators of a Small Non-Profit Organization in Trouble
It is important to remember than any one of these indicators alone does not constitute an organization in trouble. Every organization, and especially small non-profits with budgets under $1million and fewer than 20 employees has occasional difficulties. A non-profit in trouble usually has a steadily declining situation, with first one, then another of these indicators emerging.
- Financial difficulties. These may range from a small deficit at the end of the fiscal year to an inability to meet payroll. It is a persistent pattern of financial problems that identifies an organization in trouble. Non-profit fundraising is difficult at the best of times so it cannot be relied on to meet a deficit.
- Staff turnover. Most non-profits are not able to pay market wages to their staff in the first place, but if a small organization pays just minimum wage, or anything below a ‘living wage’, turnover will be even higher. This means the quality of service drops as there is a lack of continuity.
- Loss of staff motivation. Obviously, money is not the reason that most staff want to work in a small non-profit organization. It is usually because they have a commitment to the actual non-profit services, and to making life better for the clients. Staff can sense when there are issues of sustainability. They will inevitably question whether or not they are working in the right place. Even if they do not leave the organization right away, their disappointment and despair will show in the client service they offer and will eventually poison the work environment.
- Non-profit management focused on damage control. If the Executive Director has to spend most of her time and effort hustling for funds, soothing staff, or pleading with the board to do something, she is not able to do her full time job of planning, organizing, and directing the client service.
- Loss of credibility in the community. Other agencies, funders, and even the general public usually have a good idea when a non-profit is in difficulty. This is when the vicious cycle begins. Loss of credibility means loss of support, whether financial, volunteers, or service partnerships. This, in turn, leads to diminished client service, which goes straight back to further loss of credibility.
The non-profit board that sees these indicators in its organization needs to evaluate the situation immediately to see what can be salvaged. Funding is usually the most crucial element. If there is no secure sustainability financing, then it is probably time for the board to recognize that the organization cannot continue as a stand-alone service provider.
Options for a Small Non-Profit Organization to Consider
There are always options for the board to consider. If board members are truly committed to the client outcomes for which they provide a service, they will want to consider these options before the situation is irretrievable.
- Merge with another small organization that provides similar or complementary services to the same client population. An example could be a merger between a drop-in center for people living in unstable housing and a food bank in the same area. It is important to note that a merger is really between the people, not the organizations. If a merger of non-profits is going to be successful, there must be an unreserved commitment to it on both sides.
- Move under the umbrella of a larger organization with a similar mission and the same clients. There are several variations on this option: consolidation, collaboration, or contractual affiliation. The smaller non-profit may or may not lose its identity, but it definitely does not lose its client service. In fact, the clients might now have easier access to even more services. An example of this is a sheltered workshop for restoring furniture being folded into a large, multi-service center for homeless men and women.
- Dissolve the non-profit organization. This is huge, very difficult step for any non-profit board to take. The easiest way to get through it is to focus on the client services and outcomes, on what is best for them. This should be a planned initiative, so staff and clients have due notice and there are referrals and follow-up in place for clients.
These options are not quick solutions to an awkward problem. They all require due diligence on the part of the board, not just to make a decision, but also to implement it. There are many legal considerations. Once a board decides to even entertain a discussion of options, it is time to explore the legalities of each possibility.
None of these options is easy. All require an open mind, a focus on the clients who are being served, a collaborative spirit, and a portion of humility.
Constance Woloschuk - 30 years experience in management and organizational development; extensive volunteer work with faith-based organizations.
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