Should You Close Your Nonprofit?

Closing a nonprofit organization is usually the last thing that comes to mind when considering potential futures for an organization you’ve dedicated so much passion and time towards. It is natural for companies to run their course whether from successfully completing their mission or from a variety of issues that may arise like financial instability or loss of resources. In fact, an article by Candid evaluating various scenarios showed that 4 percent of nonprofits would close in the absence of a crisis. Our country is currently going through a unique crisis, one that has occurred only once in the past century. Battling the coronavirus pandemic has been difficult for everyone. Even with government aid and public willingness to support nonprofits, organizations may still be facing a variety of challenges. Evaluating your nonprofit’s status during a global pandemic with an honest approach is a brave action to take. Here is what goes into consideration when it comes to closing a nonprofit:

What to Evaluate When Looking at the Life of Your Nonprofit
There are a number of reasons for dissolving a nonprofit organization. These all tie into whether or not you’re able to continue running a nonprofit. 

• Financial Stability
  

Financial struggles have been common for organizations since the start of the pandemic. With the need for social distancing, many locations are unable to function as usual and generate the revenue needed to maintain operations. Theaters are unable to hold shows, museums have limited guest access, and major fundraising events have to be put on pause until it is safe to gather in crowds again.

Other organizations that rely on donations are also feeling the stress of the pandemic trickle through. Members of the community have been struggling to make ends meet during the pandemic. There have been many instances of lay-offs and furloughs since last March. Families are also having to deal with loss of income from being unable to work due to medical problems or quarantining. “Nearly two in five American households say they’re making less money since the start of the pandemic.” This limits the amount of charitable donations that people are able to make. 

While emergency funding through grants and loans are an option, relying on these for extended periods of time is not a solid strategy for the health of your nonprofit. Look over your available funds and income sources and if you see continued issues, it might be time to consider closing. 

• Market Competition & Need
  

Many organizations will fill similar needs and fight for causes within the same area. Many will consider closing down their nonprofit if they are no longer able to carry out their mission to the extent they originally planned due to competition from others. 

The coronavirus pandemic, along with public unrest stemming from social justice issues, has also boosted specific nonprofits to the forefront of peoples’ minds. Those making charitable contributions are dedicating their resources to those working on the frontlines, COVID-19 related nonprofits, and, in the wake of the Black Lives Matter movement, nonprofits that work to promote social justice. This leaves others like those focused on arts and education, for example, struggling with unexpected competitors. At certain times, there may not be enough bandwidth in the system to support as many nonprofits.

• Resources Available
  

When considering resources that nonprofits need to function, a number of factors must be evaluated. These include staffing, volunteers, or simply the mental capacity of those in the organization. 

Throughout the crisis, Johns Hopkins University found that over 1.6 million nonprofit workers have lost their jobs. With many nonprofits being under-resourced even before the pandemic began, holding on to staff during difficult times may not be possible. Less staff may lead to the inability to carry out your organization’s work and limit your work towards your mission.

Nonprofits are also facing a new problem when it comes to volunteer numbers. The pandemic has prevented people from being in close contact with one another which means organizations that rely on the help of in-person volunteers may feel the strain more than before. Sacrificing the work of an organization in favor for the safety of people is never a bad choice. 

Sometimes, people just become too burned out. This is understandable when it comes to running an organization you are passionate about. The past year has taken its toll on people in unimaginable ways. A lack of energy to dedicate to an organization may also be an important resource to take into account when considering closing your nonprofit.
 
Actions to Take When Closing a Nonprofit
There are a number of steps to take in the event of a nonprofit closure. One of the key points to remember is to keep your staff and your clients at the center of your actions. This means keeping people informed and approaching the situation with patience and empathy. Many people have dedicated time, energy, hopes, and even their hearts in your organization. Take the time to walk them through this process and offer support where you are able. 

These are important actions to take when going about closing a nonprofit organization. Each organization’s dissolution plan will differ according to their structure and needs, but here is a basic outline of an effective closure strategy. 

• Hold Board Meetings

One of the first steps in closing a nonprofit is to gather the board of directors and hold a final meeting to vote on the dissolution of your organization. Make sure to record meeting minutes and the final decision in your notes.

• Notify Parties Involved
  

Go through your list of contacts, employees, clients, and other entities and keep them informed. Give your employees as much notice as possible and include information about their benefits, retirement funds. etc. Contact clients to make them aware of the future of your organization and let them know services will no longer be available. Keep donors in the loop as well and let them know where their remaining funds will be used.

It is also important not to forget federal and state entities in your notification process. You will need to file a formal intent to close with the state as well as submit final tax documentation to the IRS within a few months of closing. 

• Take Care of Your People

The people involved with your organization may struggle with the closure decision. Offer help where you can whether this means through job counseling, severance pay, or even being willing to be a reference for future jobs. 

Clients may suddenly have a gap that needs to be filled. Refund fees for unused services, refer clients to similar organizations in the area, or offer what help you are able to in the final days of your organization. 

• Inventory Assets & Pay Off Debts
  

Handle additional finances before closing. Consider all assets and determine deposition. Pay back any debts you may owe or work with suppliers to come to an agreement. Those that are facing major debt problems can look into these solutions for closing. 
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• Honor Your Legacy
  

Finally, remember to give credit where credit is due. Honor your staff, board members, and volunteers. Don’t forget to give your organization credit for all of the impactful work it has already done! Document the life of your nonprofit and pass it on to a library, historical society, or even another nonprofit that might gain insight from your experiences. Honor the work and accomplishments of your organization.