How to Tell If a Collaboration Should Be On the Horizon for Your Nonprofit

For nonprofit leaders, the work demands equal parts professional competency and passion for the cause. As visionaries, they have a clear sense of the impact their organization’s work can have on the communities they serve. As pragmatists, their strategies and plans must contend with a host of constraints that limit the reach of their programming.

Increasingly, nonprofit leaders are finding creative ways to collaborate with other organizations to advance their mutual interests. They may exchange information, share resources, reduce duplication of effort, explore other cost-cutting opportunities, leverage one another’s strengths, and/or devise strategies and programs to better serve their constituencies. The spectrum of non-profit partnerships includes:

• Executive Director and Development Director Forums in which professionals share their successes and struggles for mutual encouragement and enlightenment.
• Project Collaboration in which two or more organizations share responsibilities and resources to pursue common objectives while retaining wholly separate identities and financial records.
• Fiscal Sponsorship in which a larger, financially stable organization provides support services (e.g., fiscal, human resources, IT) for a smaller organization on a fee-for-service basis while both retain separate identities, financial accounts, program services, and program staff.
• Joint Venture in which two or more organizations create a new corporate entity to provision services or programs.
• Merger in which two or more organizations combine their governance, operations, and resources to create a new non-profit entity.
• Acquisition in which one organization assumes control of another organization’s governance, operations, and resources.

Many not-for-profits already participate in discussion forums through industry associations, peer group gatherings, and long-standing friendships. Other than an appropriate amount of restraint to protect one’s trade secrets and competitive standing, ongoing participation requires nothing more than assessing the value gleaned for the investment in time.

For all other engagements, answers to a few penetrating questions can shed light on the road ahead. For example:

• How does this relationship advance our core mission? Does it fill a gap in our organization? Does it allow entry into a new area consistent with our strategic direction? Does it enhance our reputation, market presence, or stability?
• What roles and responsibilities would each organization assume? What specific outcomes should we expect to achieve and how would we measure them? Does our prospective partner have the capacity to fulfill its end of the bargain? Do we?
• Would partnership compromise effectiveness for our key programs or service areas? Would it enhance or compromise our ability to secure funding? Does it pose any short- or long-term financial risk? How readily could the arrangement be unwound if it proved detrimental?
• To what extent would organizational culture be a factor in the proposed relationship? Under what conditions would our staffs work together? How would they react? What structures would we need to establish to support productive communication and mutual accountability? How would we resolve conflict?
• How might our donors and supporters respond to this relationship? How would the people served react?

Clarity around objectives, outcomes, and organizational “fit” provides the means to select appropriate dialog partners and engage in productive conversations. As these discussions move toward a declaration of intent and the associated due diligence, it’s a good time to get the experts on board to weigh in on the preliminary plans.

Accounting and tax professionals with a deep background in nonprofits understand the impact that each type of partnership might have on your bookkeeping and your internal and external reporting requirements. For example, the structure of a joint venture determines how each party reports costs incurred and revenue generated from transactions with third parties. There are also disclosure requirements as to the nature and purpose of the arrangement and each organization’s rights and obligations. Mergers and acquisitions also come with a host of reporting requirements that accompany the change in organizational structure. An assessment of the impact on financial reporting might inform the decision making and operational plan. Proper treatment after a formal agreement has been reached is essential.

In like fashion, an attorney well-versed in not-for-profit federal, state, and local statutes can provide guidance on the pros and cons of the prospective arrangements and make sure the organizations understand their regulatory obligations when and if they move forward. These considerations will be factored into the formal agreement that the attorney prepares for signature.

The signs of the times suggest that collaboration and consolidation will be hallmarks of the non-profit sector in the coming years. We look forward to helping you navigate this terrain to ensure the greatest possible impact on your mission, core values, and organizational effectiveness.