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How working with other organizations can support your mission and expand the impact in your communities

Collaborations to advance your NFP – A Baker Tilly series

This is the first article in our NFP collaboration series.
The world has changed. And our communities have changed. Can you reinvent what you do? Continue to acquire adequate funding to carry out your mission with rising costs? Are you meeting new community demands? Are you thinking you might have to close your doors without big inflows of new dollars? Is it time to dissolve or combine?

Perhaps some of these questions are going through your mind as you develop or refine your strategy for the coming year or revisit your purpose to change with the times. You’re not alone. Many not-for-profits (NFPs) are looking for new ways to remain relevant and sustainable, and meet the changing demands being placed on their organization. This cannot always be done alone. There are options and considerations beyond cutting back on programs or closing your doors.

Many innovative alternatives exist today for organizations looking to grow their current programs, expand into new services or find new funding options. Collaboration between organizations could be just the answer you need to thrive in this new world and it can take many forms. From mergers and joint ventures to cooperative activities, alliances and shared services, NFPs are finding creative ways to build and maintain their vital role in their communities.

Some recent examples of collaboration among NFPs include:

  • A healthcare organization signed a memorandum of understanding with another organization in the community to share administrative staff (billing, CFO and providers). They are also collaborating on how to expand their reach into the communities they serve and jointly approach state grant opportunities knowing they may accomplish more together than individually.
  • A national NFP youth organization was feeling the strain of duplication of services and delivery of programming across multiple local organizations. The national NFP performed a study to determine whether it made sense to consider combining various local entities into larger state-wide or regional chapters. By expanding the size of the organizations serving youth within the various states, they were able to increase programming availability, eliminate duplicative administrative services and strengthen the future financial viability of the organization.
  • An NFP social service organization formed a partnership with a competitor to bring a new service to individuals in their community. While the long-term sustainability of the program is currently unknown, the collaboration allowed the organizations to pursue state grant funding to launch the program and serve additional individuals.

The passion of NFPs to serve their communities meets an important need in our world. In fact, nearly one third of workers across the U.S. are employed by NFP organizations and they have experienced the same workforce challenges as the for-profit sector. With these challenges, there is greater demand on organizations and their leadership to carry out their mission.

Why are collaborations happening?

There are many reasons why NFPs are exploring collaborative alternatives, including:

  • A need to better serve the organization’s mission or adapt to the community’s changing needs
  • Talent/workforce challenges, including an aging workforce considering retirement, greater competition for people choosing other avenues for employment, and people demanding greater pay and benefits
  • Competition for dollars – in terms of donors, agencies and foundations, where the money comes from, there is less to go around
  • Increased demand for services and programs as well as the costs to deliver them
  • Succession planning with founding leaders retiring
  • Plaguing infrastructure issues, such as outdated systems, administrative duplication of services, aging or empty facilities, and poor economies of scale
  • Financial challenges, such as decreased donations, an aging donor base, depleted cash reserves and mounting debt

Many NFPs who were struggling before COVID found organizational challenges were compounded due to the pandemic, creating a greater urgency to explore new and innovative collaborative alternatives to answer these challenges now. Conversely, the pandemic also allowed organizations to think differently about options and challenge the status quo.

Things to consider when contemplating a collaboration

There are several things to consider when evaluating opportunities to collaborate. Some of these key questions might include:

  • What organizations within the community are potential candidates to partner with?
  • Would collaboration advance the mission of both/all organizations?
  • Are there adequate resources to effectively accomplish the objective?
  • From a programmatic and administrative perspective, are the resources of the collaborating organizations aligned for success?
  • Do the organizations have a similar culture and overall strategy to foster success?
  • Will we accomplish more together vs. separately?
  • Are all organizations prepared to dedicate the resources and time needed to accomplish the objective?

What might a collaboration look like?

Collaborations can take on various formats and levels of sophistication. Let’s look at a few:

  • Mergers and acquisitions – This is often the first thing that comes to mind when addressing collaborations; they produce real transformation and can be complex. With the legal and governance requirements that govern NFPs, a merger or acquisition often involves one organization dissolving and transferring/granting its assets, liabilities and programs to another organization. These approaches require great commitment of the boards and people as the culture of both organizations will shift from one organization to another or to a new combined identity.
  • Joint venture (JV) – In a contracted JV, organizations collaborate on programming or projects with shared revenue and expenses but maintain their individual autonomy. The JV may be a formal partnership or informal alliance. Both are good options for combining resources, accomplishing efficiencies of scale and collectively expanding services or programs. When start-ups or smaller organizations are looking for support and resources at the beginning of their lifecycle, a fiscal sponsorship arrangement might be considered.
  • Shared Services Agreement (SSA) or Memo of Understanding (MOU) – If an organization needs operational and/or administrative help, an SSA or MOU can prove beneficial. In these arrangements, one organization provides the accounting, administration and program delivery for another organization where there is mutual benefit. There are also organizations that provide managed services for NFPs for a fee. NFPs effectively outsource all accounting and administrative requirements so they can focus their people and resources on the programs being delivered.
  • Restructure – When working with another organization is not the right alternative, NFPs may consider restructuring their current operations. This could involve the divestiture of programs or assets, or the closing of a location to better streamline operations and reduce expenses. Restructuring operations can sometimes be the first step in reforming an organization to be more sustainable and more attractive for a future collaboration.

What’s the first step?

If you are asking some of these questions or facing some of the challenges discussed in this article, it’s probably time to talk with your leadership and board to start exploring the possibilities.

While there is a lot to consider, through collaborations NFPs may be stronger and able to accomplish more together.

Baker Tilly is also here for you. We have hundreds of professionals dedicated to working with thousands of not-for-profit organizations, some of whom are asking these same questions. Connect with a Baker Tilly Value Architect™ to explore ways we can assist on your collaboration journey.

Also, look for more to come from Baker Tilly as we continue to explore the different considerations and many ways your organization can navigate an innovative collaboration.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Second article in the NFP collaborations series

Build stronger together: M&A due diligence for NFPs

Karen Gries
Director
Allison Webb
Director
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