Submitted by Jean Butzen on June 9, 2008 - 05:32

"The Warning Signs of Organizational Failure"

Most of us who have run nonprofit organizations in our career have, at one time or another, felt the panic of failure. When annually recurring grants suddenly, and with little warning, stop coming; when a key person in the business office leaves, or worse, fails at his or her job; when a new competitor with a talented, charismatic leader emerges in our field, we are apt to wonder whether or not these are the warning signs that our organization is not going to make it. We go through sleepless nights and stress-filled days until we see our nonprofits through the latest hurdles. But what if the hurdles don't stop coming or worse, our organization can't make it over the hurdles any more?When is it the right time to consider closing a nonprofit organization?There are so many crises in the day-to-day operation of a nonprofit organization that it can be difficult to tell the difference between the normal state of affairs and an actual disaster. How can a nonprofit CEO or a board of directors tell the difference? This has not been an easy question to answer until now.The Fieldstone Alliance recently published a document on its web site called The Nonprofit Decline and Dissolution Report which identifies six warning signs of decline for a nonprofit organization. They are:1.  Loss of all or a significant portion of support from a key funding source2.  "Chase dollars" syndrome3.  Sudden and dramatic expansion of services4.  Falling behind on financial obligations5.  Consistently unable to meet service and financial projections6.  Departure of key board and staffAs the report states, "The point at which a nonprofit organization's mission is 'to survive' is the point at which the organization should consider going out of business."Is this your organization's actual purpose? It's important to state that these six factors are not an assurance that an organization will fail, but they could be leading indicators.You must confront the facts of your situation regardless of whether your nonprofit is closing or not, the sooner the better. Time gives you better options including preserving your organizational assets through a merger. Once the situation spins out of control it can become too late even for a merger.And if a merger is not for you, time can allow for a smooth close-down process which allows you to transition your services to other nonprofits. This will be important for your clients and your employees.