Last month, we talked about the initial considerations of a non-profit merger, as well as the critical due diligence phase. After finding unity of purpose, reflecting on the relevant issues and deciding that a merger aligns with your goals and mission, you engaged in an extensive due diligence process, examining all legal, financial, logistical, and human resource documents and processes. At the conclusion of due diligence, the board of directors of each organization developed and approved a Plan of Merger consistent with applicable state laws. At long last, after months of preparation, meetings, discovery, approvals, and planning, the time arrives for merger implementation. Essentially, it is finally time to close the deal. However, this is only the beginningof the end.
As with the previous phases, planning and organization are crucial for a successful implementation. While it would be nice if we could sign on the dotted line and all issues magically resolve, we know that is not the case (it never is!). This process, like the others, will take time, patience, and an in-depth understanding of the logistical steps that must be achieved to effectuate the merging of two different organizations. The following checklist can be used as a guide through the final steps of the merger.
1. Appoint a Merger Transition Team. This group of three to six individuals will spearhead each logistical step of the merger. They will assign tasks, set timelines, and keep the merger moving forward at a reasonable pace for the new nonprofit.
2. File Appropriate Documents with the State. Each state has its own requirements for filing with regard to non-profit mergers. All documents should be filed with the state of organization/incorporation, following those particular guidelines and requirements. Note that although the merger is legally completed once the state accepts the documents as filed, many more steps must be taken for actual completion.
3. Develop Integration Plan. Due diligence should have previously identified duplicative positions, departments, and resources. This plan will identify what is being removed and what is surviving in the new organization. The plan should also identify any issues in the short-term due to the merger and provide for analysis at one month, three months, six months, and twelve months.
4. New Board of Directors Established. The new board generally consists of previous board members from each of the non-profits prior to merger, but can be entirely new. They should establish their new meeting schedule and implement new by-laws as soon as possible.
5. Schedule Employee and Volunteer Training. How will the new departments, responsibilities, and tasks differ from the previous ones? What do employees and volunteers need to know about the mission, vision, and day-to-day operations to effectively perform their duties?
6. Determine Human Resource Needs. Establish a new payroll system, health benefits, vacation and sick pay, and hiring and termination protocols.
7. Finalize any Facilities Management Issues, Vendor Contracts, and Insurance Coverage. What contracts need to be rewritten in the new organization’s name? How will insurance coverage transfer without lapsing?
8. Develop Communication Plan. This plan should involve internal and external communications and ensure consistent messaging throughout. This may include the launching of new branding, the name and logo, and a marketing campaign. The new website and social media accounts must also be established and maintained.
9. Finalize Financial Transactions. Transfer assets, close and open accounts, as needed, and integrate accounting systems.
10. Implement Technology Solutions. How will technology, phone systems, and databases be integrated? What is still required? What can be eliminated?
While the entire process can take between twelve and eighteen months, depending on the size of the organization, this Closing Checklist enables the Merger Transition Team to keep the merger on track, heading toward a successful completion.
Need more assistance? Barker Associates has extensive experience working with non-profit organizations as they implement and finalize mergers. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.
Last week, we talked about the initial considerations of a non-profit merger. Once you’ve reflected on the relevant issues and made the decision that a merger aligns with your goals, donors, board members, and mission, it is time for the next phase of the process – engaging in due diligence.
In the scenario of a non-profit merger, due diligence has three primary functions:
1. Minimizing the risks associated with joining two separate organizations to further a common mission;
2. Providing clear insights into each organization’s interests; and
3. Improving the timeframe of the merger by reviewing the relevant documentation and processes, and identifying any challenges sooner rather than later.
Due diligence is conducted by thoroughly inspecting all aspects of the organization with which you plan to merge your own non-profit. The entire due diligence process consists of numerous categorical reviews, including legal, contractual, employment, operational, financial, tax, real property, physical property, intellectual property, and human resources, among others. However, for our purposes, we will focus only on financial due diligence.
Financial due diligence provides an opportunity to analyze potential savings with regard to the overhead of the combined organizations. With this full and complete knowledge, the approving Board Members will have the ability to examine the overall benefits of the merger.
The Financial Audit Checklist
Before you can merge with another non-profit, you must possess a clear understanding not only of its current financial status, but also of its financial history. You must have the ability to answer questions such as: What resources will be available moving forward? And what obligations will remain?
Financial due diligence will include a review of the following:
Audited Financial Statements for at least three years
Annual Budgets, Projections, and Strategic Plans for at least three years
Debt and any Contingent Liabilities
Grant level financial results
Accounts Receivable
Accounts Payable
Fixed and Variable Expenses for at least three years
Depreciation/Amortization Schedules and Methods for at least three years
Outstanding Liens
Accounting Methods and Strategies
Any Investment Policies
Account Standings
Employee listing with position and annual salary
Organization Chart
Detail list of larger donors
While non-disclosure agreements must be executed prior to any due diligence occurring, many organizations have valid confidentiality concerns as they relate to financial reviews of internal documents. As one possible solution, some organizations choose to move forward in a phased approach. In doing so, they leave the disclosure of the most sensitive data and documents to the end of the process.
While each situation will be different, and financial due diligence may vary slightly, it is essential to build a foundation for success. Not only are you protecting the non-profit itself, but also the individual board members and donors involved. Each non-profit should conduct its own independent due diligence, as well as joint due diligence to maximize information and minimize risks. By taking both a historical approach and a forward-looking approach, you will gain an incredible amount of knowledge. And with more knowledge, comes the empowerment to make the best decision for your non-profit.
Barker Associates has extensive experience working with non-profit organizations as they prepare for, and go through, a merger. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.
The profound effects of the COVID-19 pandemic will be felt for years to come in all aspects of our lives and businesses. However, non-profit organizations have faced, and will continue to face, their own set of unique challenges. Overall closures, increasing unemployment, a lack of feasible projects, and the cancellation of fundraising events have combined to result in sizeable shortfalls with regard to funding.
To navigate through these trying times and ensure success moving forward, non-profits need effective solutions. One possible solution they may consider in 2021 is a merger with another non-profit. And the time to consider this course of action is now – prior to it being needed. Too often, there is an inclination to only consider mergers reactively because, for example, the organization needs financial help. However, the best time to consider it is proactively, as an effective growth strategy. When considered proactively, the advantages and disadvantages can be examined on a more rational, analytical basis instead of an emotional, biased one.
As with any transition, challenges will be present. Questions to explore may include:
Do you have enough knowledge about mergers and the due diligence required to effectuate one?
Is there enough funding for the process?
Do you know a facilitator to help explore merger options?
Does either non-profit have government contracts in their name for a specified amount of time?
Do you have too much of a personal connection to the non-profit mission and vision to examine the option clearly?
Do you perceive a merger being a failure?
Are you concerned about losing employees? Or the organization’s culture?
There is no doubt that these are valid questions and considerations that must be examined. Yet, they should not undermine the significant advantages of mergers for both organizations involved, including:
Increased resources – Instead of purchasing new equipment, leasing new space, or hiring new employees, a non-profit can gain all the resources needed through a merger.
Decreased expenses – Each organization has its own expenses, many of which will be duplicative. Once merged, those expenses will decrease.
The ability of each to meet the needs of the other – Each organization has its own strengths that will often compensate for the other’s weaknesses.
Effective growth strategy – Combined resources coupled with decreased expenses will result in an increased probability of growth.
Furthering mission – Oftentimes, with a merger, the reach of the non-profit will expand due to the increased resources, enabling its mission to have a more significant effect.
Better positioned to achieve goals – With more resources and further reach, the organization will have the ability to focus on, and work toward, reaching its goals.
Greater probability of long-term sustainability – With a more effective growth strategy, there will be a higher chance of long-term sustainability and success.
After thoroughly examining the challenges and the advantages of a merger, the following questions should be considered:
1. Can you look at a similar organization as a resource, and not as competition?
2. Can you determine the ways in which you are similar and the ways in which you are different?
3. Can you envision what working together would look like?
4. Could combining resources, leadership, and operations work in both your favors?
5. Which name should survive (considering government contracts, if applicable)?
6. Are you prepared for extensive due diligence?
Mergers are viable solutions for non-profits, whether due to funding needs or the desire for an effective growth strategy. In either case, through a merger, the strengths of each can be leveraged for a common goal. Over the next several weeks, we will explore a variety of topics related to non-profit mergers, including due diligence, closing items, and integration considerations.
Barker Associates has extensive experience working with non-profit organizations as they prepare for, and go through, a merger. If you are considering this strategy, use this link to my calendar to choose the best time for a free 30-minute consultation.
