2018 Fall issue of Horizons

The financial advantages of restructuring are easily recognizable and include: ∙ Reducing overhead and other fixed costs, as a share of the overall cost structure. ∙ Eliminating redundant costs and the ability to spread remaining direct costs over a larger base. Transfer of Leadership A merger or an acquisition is a way to strategically address a transfer of leadership that occurs with a planned or unplanned departure of an executive director. The board may look to an executive director at another organization and conclude that combining, under that leadership, is most advantageous to the legacy NFP. Access to Talent An organization may find itself struggling to recruit or retain talented staff or board members. Combining with another organization is a useful way to consolidate talented individuals who share a passion for the shared missions. Reduce Competition Competition takes many shapes with not-for- profit organizations. The most prevalent form of competition exists between organizations providing similar services to like populations in the same geographic footprint. A larger pool of organizations may be competing for the same resources, access to the same funding sources or visibility in the community. A NFP may also find itself competing with, and trying to distinguish itself from, other organizations that offer alternative solutions (to the same underlying problem) to the programs and services it provides. Expand Impact Organizations can expand their impact in several ways including expanding existing programs, offering new services that are beneficial to the community they serve or expanding their geographic footprint.

A merger or acquisition is one way to grow the organization, while minimizing the cost and energy of developing organic growth. Organizations may decide that their time and limited resources are better spent identifying a strategic partner (e.g. one that they have collaborated with in the past, that a donor suggests would be a good match or that they may find themselves being compared to or competing with). Address the Changing Landscape of Giving The amount of funding available to NFPs is impacted by how community-based donor agencies, corporations and individuals choose to identify and allocate their giving across organizations. Customizing an approach to reach each donor segment, while being consistent in overall messaging, commands creativity, resources and an unprecedented access to technology. Restructuring so that these costs are shared across a larger base is one way to ensure that your fundraising costs are kept in check. Donor preferences and giving are expected to be further influenced by the recent changes to the federal tax law. Overall, charitable donations are estimated to decline 5% in 2018. Modifying your organization’s funding approach may help your organization proactively address expected changes in giving due to the tax law changes. Restructuring so that your organization doesn’t bear the full burden of developing such a plan to mitigate declines in individual giving may also prove beneficial. It’s All About the Mission The most successful restructurings are mission- driven. It is vital that organizations looking to restructure keep the priority on how their mission and programs continue, regardless of whether the organizations retain their names or separate identities. According to a study, 88% of NFPs that merged reported being “better off” after the merger, meaning that the newly combined organization could better achieve its goals

Fall 2018

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