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The Difference Between Nonprofit and For-Profit Strategic Restructuring Processes

 

First, let’s remember a few basic differences:

A for-profit business:

  • Has owners, and the owners generally base business decisions on a financial bottom-line (“Does this help us generate more revenue and profit? If so, then we should move forward.).

A nonprofit organization:

  • Has a volunteer board whose role is to uphold the public trust by advancing the organization’s mission, and so – while the board is also responsible for ensuring effective use of the organization’s resources – it must base decisions on mission impact and alignment with shared values.

Additional differences:

A for-profit business:

  • Can use money and other financial incentives to encourage a target organization to be acquired.
  • Is often motivated to merge as a way to create efficiencies through staff reductions.
  • Often decides to merge, engages in due diligence, and works out the details afterward
  • Has the resources and engages teams of lawyers, investment bankers, and accountants to analyze the transaction.

A nonprofit organization:

  • Does not have the same type of financial levers or incentives to encourage a partnership or merger. Decisions about merger are grounded in mission and advanced by the trust and relationships developed between leadership.
  • Is typically lean, so merging is more about positioning for growth than eliminating so-called redundancies.
  • First determines whether there is alignment of vision and mission, determines how that alignment might be advanced through a partnership, and then conducts the necessary due diligence to confirm whether some form of integration is viable.
  • Often lacks the resources to engage robust teams of legal, financial, and investment consultants – and, generally speaking, this level of expense is not necessary in a nonprofit context. Legal assistance is critical, as is an understanding of the finances, but with a more limited scope and after an initial focus on alignment with vision and mission and the best ways to advance them in an integrated way.

Once the decision has been made to partner in some way, nonprofits can apply many of the lessons learned from for-profit mergers to these relationships with nonprofits – particularly the importance of paying attention to how to integrate staff and organizational cultures.

 

To learn more about nonprofit mergers and alliances, please check out our new M&A Toolkit.

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