The economic recession, coupled with budget deficits facing state and local governments, has reduced financial support for many not-for-profit organizations. At the same time, the Nonprofit Finance Fund’s 2012 survey indicated that 85 percent of not-for-profits experienced an increase in demand for services in 2011, and 88 percent are anticipating an increase in 2012. This combination has left many not-for-profits struggling financially and their leaders seeking creative ways to enhance operational efficiency and program effectiveness in order to sustain their mission.
One strategy gaining favor among not-for-profit leaders and community leaders is collaboration of services. Collaborative efforts range from sharing administrative services and costs to integration of organizations. Examples of shared administrative services and costs include the following:
- Consolidation of financial and human resource staff
- Shared fund development activities
- Increased utilization of physical space by sharing a lease for areas like reception space
- Joint program services
Executing collaborative agreements can be a difficult process, and not-for-profit leaders, boards and employees need to understand and fully support these efforts to make them successful. Unfortunately, discussions about collaboration are too often merely a strategy to survive difficult financial times rather than an innovative means to enhance the level of services provided to the community or improvement of administrative services available to the organization.
The fundamental challenge to implementing successful collaborative efforts is the overriding concern that smaller not-for-profits will lose their identity and their mission, ultimately becoming lost as part of a larger organization. Proper planning and execution of collaborative efforts are critical to their success. Here are three important questions your not-for-profit will want to consider when evaluating any collaborative strategy:
- What are the primary goals of the collaborative efforts? Understanding what your organization seeks to achieve is critical to deciding the structure of any agreement. If your organization wants to reduce operating costs, for example, you could create an alliance to share administrative support or provide joint programming. These efforts allow organizations to share services to decrease costs while maintaining independence. If an organization wants to eliminate duplication of services, a strategic merger with a similar mission-driven organization should be considered. For a merger to be successful, organizations generally need compatible missions and a strong leadership team.
- What are the benefits and related risks of collaboration? Each organization's board and management needs to identify the derived benefits and related pitfalls of their efforts. As the not-for-profits become more integrated, the amount of effort needed to foster the partnership will also increase. Due diligence must be paid when designing an agreement. Even in simple alliances, compatibility and development of trust between organizations is critical to success.
- How will success be defined and monitored? Organizations entering into collaborative efforts need to define what constitutes success and how these criteria will be measured. It is critical to create a framework to periodically evaluate the relationship, while ensuring adequate communication exists between organizations to address any performance concerns.
Not-for-profits in our communities provide critical services that residents rely on to meet their basic needs, funded through a combination of private donations and governmental support. While economic recessions often create financial challenges, not-for-profits must continually evaluate their operations even during periods of strong financial performance, looking for opportunities to increase collaborative efforts between not-for-profits and governments to improve operational efficiency and program effectiveness. Strong and vibrant not-for-profits in our communities fulfill a critical role in our economy and improve our standard of living.
David Maccoux, CPA, is a leader of the firm’s government and not-for-profit industry team. He has more than twenty years of experience providing auditing and consulting services to Wisconsin governments and not-for-profit entities, specializing in organizations that receive federal and state financial assistance.