Nonprofit Merger Checklist

By Jennifer Williams

Nonprofit organizations usually operate on less funding and fewer staff members than they need. Their nonprofit status usually means they depend on outside sources of funding such as grants and donations to fund day-to-day operations. But what if the nonprofit could make the money go further while providing better service to a larger service community? Merging two similar nonprofits is one way to make this happen. According to the Foundation Center, a well organized nonprofit merger only takes between nine and 18 months to complete, after which the new organization may be able to offer more and better service than either organization could have accomplished on its own.

Nonprofit organizations usually operate on less funding and fewer staff members than they need. Their nonprofit status usually means they depend on outside sources of funding such as grants and donations to fund day-to-day operations. But what if the nonprofit could make the money go further while providing better service to a larger service community? Merging two similar nonprofits is one way to make this happen. According to the Foundation Center, a well organized nonprofit merger only takes between nine and 18 months to complete, after which the new organization may be able to offer more and better service than either organization could have accomplished on its own.

Reasons Nonprofits Merge

Unlike for-profit businesses, whose primary goal is to compete in the marketplace and make money, a nonprofit organization exists to further a particular philanthropic goal. Separate nonprofits may decide that their similar or identical philanthropic goals are better served by pooling resources rather than competing for the same private and government grant money and duplicating a service area. Merging can enable the pooling of human resources, knowledge and funding in order to pursue a common mission in the most efficient manner.

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Check Grant Requirements

Often grants are awarded with a host of stipulations and conditions. Before getting too attached to the idea of a merger, read the fine print of all grant awards of both nonprofits. Grants awarded by private sources and by the federal government cannot always be transferred to another organization, even one that is created by merging the existing organization with a partner. Funding is the backbone of any nonprofit. If the funding that supports either potential merger partner is jeopardized by the merge, consider carefully whether pursuing a merger is really in the best interest of either organization.

Financial Analysis

A nonprofit considering merger must examine a potential partner's fiscal integrity and ensure that the merger will not be cost prohibitive. The idea is to better serve the nonprofit's mission, not assume more problems than are solved. Ask for complete financial disclosure. Is the potential merger partner's financial house in order? Are the ways in which both organizations approach money philosophically compatible?

Analysis of Merger

If the fiscal analysis produces satisfactory results, the next step is to ensure that a merger is financially viable. Will the merger save both organizations money? Will it allow grant funding to go further so that the nonprofit mission is better served? How long will it take before the merger pays for itself in terms of both savings and increased service to the nonprofit's target community?

Communication

No one likes to find out her job is in danger. Mergers necessarily produce some redundancies, either in individual positions or entire departments. Who and what will become redundant if the merger happens? Have a thorough understanding of the answer before talking to staff about the potential merger. Be able to explain how redundancies will be handled. Communicate with staff as much and as honestly as possible. Ultimately, staff will make or break the merger. They need to be behind the idea for the merger to be successful.

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References

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Grants for 501(C)(3) Organizations

A nonprofit organization with 501(c)(3) tax-exempt status may qualify for various grants to help it carry out its nonprofit mission. Organizations that distribute grant money, called grantmakers, usually have a specific focus, serving certain types of nonprofits or populations in need. Some examples of 501(c)(3) nonprofits include educational, religious, charitable and scientific organizations, all of which may qualify for grants. Obtaining grant money starts with a thorough search for a grantmaker whose focus closely matches the mission of the grant seeker.

Differences Between a 501(c) and an L3C

The low-profit limited liability company, known as L3C, is a new organizational form that is now available for charitable organizations. The traditional method for organizing a charitable group is to file for 501(c) status with the Internal Revenue Service. Despite these organizational structures' shared focus on charitable purposes, they have some key differences regarding federal taxation, fundraising and distribution of organizational assets. Also, the group's location may influence the organizational options that are available. When considering which organizational type to pursue, consider consulting with an attorney.

How a Nonprofit Can Set Up a Scholarship

Scholarships are one of many tools used by nonprofit organizations to do charitable work. And given the continuing increase in education costs, scholarships from private organizations have become even more important for struggling students and their families. If your nonprofit wants to become one of the many entities providing funding for students, the process of creating a scholarship program is straightforward but requires some planning.

Doing the right thing has never been easier.

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