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Hospice Care for Nonprofits, Part 2: The Board’s Role

Downward graph with photo of dollar bills in backgroundBecause not every group is designed to last forever, I recently shared a post about end-of-life care for nonprofit organizations.

Regardless of your role—staff, volunteer, consultant, or supporter—it’s helpful to understand organizational life cycles. Board members have a unique responsibility for life-and-death decisions.

To my fellow trustees, this post is for just for you. 

End-of-life horror story, board edition

In the 1990s, I served on the board of a small national organization. When our primary foundation grant wasn’t renewed, we faced a budget crisis. We discovered—gradually and painfully—that the executive director had used a variety of tricks to hide the financial truth from the board.

Our total debt exceeded $140,000, including $60,000 owed to the IRS and state tax agencies. (FYI, trustees are personally liable for unpaid payroll taxes.)

As the size and nature of the debt became clear, half the board melted away, perhaps on advice of their lawyers. Those of us who remained fired the executive director, developed a debt-management plan, raised enough money to pay the tax bill and settle with other creditors, “adopted out” the most important programs to other nonprofits, and closed the organization.

From emerging crisis to shutdown, the process took almost two years.

Board members—ask these questions!

This story illustrates several challenges trustees must consider when faced with a possible merger or dissolution. As you evaluate your options, ask yourselves the following questions:

Do we have a sustainable mix of income? If not, how soon can we create one?

As a board, we did a miserable job of enforcing financial controls, but we failed an even bigger test of fiduciary responsibility: we didn’t question the sustainability of a group that received more than half of its income from one funder.

Any of us could have asked, “Why are we relying on a single grant? If we lose that grant, we are in deep, deep trouble. What are we each willing to do—personally—to diversify our funding?”

Good board governance is not simply about financial controls and legal responsibilities. At a deeper level, it’s about building organizations that are fiscally sound and financially sustainable—and that includes a diverse mix of income.

Is everyone helping to raise money? In Fundraising in Times of Crisis, Kim Klein writes, “Most people’s instinct is to cut expenses rather than raise money. ... Resist this impulse as much as possible.”

In most fundraising programs, the weakest link is not a poor case, or a limited number of prospects, or an inadequate database; it’s a lack of askers. The more people who engage with donors, the more money you raise.

It astonishes me how many trustees would rather do anything—including allowing their organizations to decline and possibly die—before they’re willing to confront their fear of fundraising, get off the bench, and get in the game. 

Is the lack of money a presenting symptom, rather than the disease itself? Is your mission unclear? Are you duplicating the work of others? Are you adapting to changing demographics? Do you have a marketing plan? Is everyone going through the motions but no longer passionate about the work?

Given any of these problems, fundraising becomes more difficult and the budget becomes unbalanced. As consultants like to say, organizational problems tend to show up first in the money. Faced with financial challenges, look more deeply to find the real causes. 

What don’t we know? Talk with peers, read whatever you can, and consult with experts. Ask colleagues who’ve been through a merger or dissolution to talk with your board.

Be deliberate and thoughtful. As the old Chinese proverb states, “We have no time to waste, so we must move very slowly.”

Three keys to a successful transition

Create a “nonprofit will.” If you choose to shut down, what will happen to your assets, programs, database, obligations, staff, volunteers, and so on? Have you identified recipient organizations? Are they willing and able to accept what you plan to give them?

At Native Seeds/SEARCH, a regional seed bank for traditional Native American crops, the most important assets are the seeds themselves. Native Seeds has agreements with other seed banks to accept, store, and propagate these seeds should the organization shut down for any reason. 

Finish your work. When half the board disappeared from our troubled organization, we were left with a fraction of the previous energy, time, and brain power.

Yes, board members serve as volunteers, and it’s a rare volunteer who’s willing to take on an end-of-life assignment. But remember: a commitment is a commitment, and each person who bails out leaves more work for those left behind.

Whatever path you choose, celebrate. If you close your nonprofit, treat it as an opportunity to celebrate your accomplishments. Imagine a New Orleans ragtime funeral parade—an exuberant affirmation of life.

If you successfully merge two organizations, invite everyone to the wedding party. Treat the next phase of your organizational life as an opportunity, rather than a failure. Be sure to honor everyone—board, staff, volunteers, donors—who carried your work forward to this moment.

This post is reprinted from the Train Your Board (and Everyone Else) to Raise Money Blog.

Andy RobinsonAndy Robinson is author of How to Raise $500 to $5000 from Almost Anyone; What Every Board Member Needs to Know, Do, and Avoid; Train Your Board (and Everyone Else) to Raise Money (co-authored with Andrea Kihlstedt); and The Board Member’s Easier Than You Think Guide to Nonprofit Finances (co-authored with Nancy Wasserman).

Topics: Nonprofit management Nonprofit Lifecycle