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Transforming Vulnerable Organisations

Winding up your non-profit is a last resort for vulnerable organisations. It is a very difficult decision to make. Plus it can be difficult to know when and how to do it. This post considers strategies for a transformative approach should you recognise the warning signs.

Over the last few years, policy and funding reforms have forced non-profits in the community sector to rethink their business approach and their survival strategies.

Boards have had a complex job in recognising and anticipating how disruptive these reforms will be to the established flow of their non-profit’s services and in deciding whether they can successfully navigate the rapids and survive.

Is my non-profit viable in the face of disruption?

Some boards will ultimately determine that their organisation is too vulnerable to continue to be viable. But what factors can help you to decide this?

Indicators that an organisation may be at high risk of not being viable long-term include:

  • Size (<$200,000 turnover)
  • Reliance on an annual funding grant only
  • Lack of surplus to cover contingencies
  • Drop in demand for existing services
  • Competition for services
  • Increase in demand, but a struggle to provide services with existing resources
  • Services no longer in alignment with government policy reforms

Other key indicators include:

  • Increased costs, e.g. wages, rents, insurances
  • Board does not have skills/confidence to commit to the effort required
  • Staff do not have the skills/energy to commit to the effort required
  • Loss or major illness of key staff
  • Loss of reputation in the local community and with key stakeholders

Trading while insolvent is illegal—so your board should keep a close eye on these indicators to make sure you avoid it.

Isn’t a quick wind up best?

While some boards make the decision to wind up quickly, this often seems like a knee-jerk response to feeling besieged and overwhelmed by the enormous effort required to respond to significant disruption.

A quick decision and wind up can also mean:

  • The organisation’s physical presence disappears swiftly and staff are left feeling abandoned
  • Services may be lost without any plan to handover to an alternative provider
  • The community (which, in principle, owns the organisation) does not have a chance to recognise and acknowledge the impact the organisation has made

A quick decision to wind up does not immediately absolve board members of responsibility. They remain legal representatives of the organisation throughout the wind-up process and may still be required to sign documents 12 to 18 months later. As a director, you should always consider yourself to be a responsible caretaker of an entity that exists beyond the concerns of the immediate time.

Some boards make the decision to wind up their non-profit when indicators (as outlined above) point to a high level of vulnerability.

Boards that make a decision to strategically consider their future and pursue a path of transformation in the full knowledge of how vulnerable the organisation is—including the strong likelihood of winding up—respect an important process and show their wisdom.

What’s the best approach to transforming a vulnerable organisation?

When thinking about whether or not to wind up your non-profit, you will ideally take a measured approach that reviews all your options.

This review should include:

  • Getting clear about an enduring vision and purpose of the organisation
  • Identifying a decision-making time frame, based on funds available
  • Considering the decision-making time as a transition period
  • Engaging the board (see our post Engaging the board with change)
  • Securing the board’s commitment to making fully informed decisions
  • Preparing a budget specific to the decision-making timeframe

Your review should also involve:

  • Investing in modelling of alternative business cases
  • Exploring potential partnerships and/or mergers
  • Ensuring regular stakeholder engagement in the process
  • Operating in a transition environment and ensuring staff are fully aware of this
  • Delivering on the purpose of the organisation
  • Maintaining positivity and motivation throughout the process

Briefly, what does a successful wind up look like?

Winding up an organisation successfully is a process—and one that values the enduring purpose of the organisation, respects all who’ve been involved, and leaves everyone feeling professionally and/or personally enriched. As with any major change, there will be a lot of white water to navigate and the process will be a bumpy journey. But, by the time the decision to wind up is made, everyone involved is in the same boat and knows that they have made their best effort on behalf of your organisation and the enduring purpose.

Can you share an example of an effective transformation?

About 3 years ago, a national peak organisation acknowledged how vulnerable it was. The board considered a transformative approach which included re-energising the existing membership and business plan, but also considered viable alternative business cases.

The board initially identified the vision and purpose of the organisation based on what they anticipated the future to be. Directors were then fully engaged in providing oversight throughout the transition period and making decisions about alternative business cases. During this process the board matured into a strong decision-making board with close working relationships. A highly motivated, skilled and energetic CEO also helped to drive the process.

Members were fully informed and invited to contribute to decision-making throughout the transition. They were also offered revitalised activities so they could trial preferred options.

Ultimately, it became clear that the organisation would continue to struggle to be viable as competing organisations had the scale to gain access to the finite resources available.

There is no doubt that the wise and dignified way this organisation responded to the prospect of closure will earn it a great deal of goodwill and respect. Its enduring vision and purpose will also leave a strong legacy long after it has closed its doors.

Our webinar on Wednesday, 28 October explores this in more detail: to register click here.

– Laurel Draffen, General Manager, New South Wales

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