Keelan: Is it time for nonprofits to discuss merging?

By Don Keelan

One of the many treasures found in Vermont is the abundance of nonprofit organizations and the work they do. In financial size, they range from the billion-dollar UVM and its related health care institutions, to the local food pantry. At last count, the state has over 5,000 nonprofit organizations registered with the Vermont Secretary of State’s office.

And not unlike any treasured item, care and attention needs to be applied on a regular basis. If the results of a recent national survey on nonprofit organizations conducted by one of the country’s largest accounting firms, BDO, hold true, many of Vermont’s nonprofits could be heading into troubled waters.

The results of the survey were published in the February 2018 edition of Accounting Today. What I found intriguing were the three top concerns of leaders of nonprofit organizations: retention and recruiting personnel (72 percent), revenue stream uncertainty (48 percent), and dealing with regulations (28 percent).

I am not unfamiliar with the difficulties of hiring and retaining employees at a nonprofit organization. I was unaware of the high level of concern. Electing to work in the nonprofit world takes a different type of person. Except for maybe the largest of nonprofits, compensation, whether in the form of salary, pension benefits or other employee perks, is minimal at best. It is the mission of the organization that attracts. However, the flip side of this is that nonprofit employees feel that they can change jobs to increase their compensation while continuing to stay in the field.

For those nonprofits that depend on donations rather than grants as their source of income, 2018 could be a challenging year. Soliciting annual donations was, and continues to be, an ongoing task for many Vermont nonprofits. The recently passed Tax Cuts and Jobs Act only made the task more difficult and uncertain.

The experts quoted in the Accounting Today piece noted that there could be a drop in annual donations in 2018 ranging between $12 billion and $20 billion. Their conclusion is that taxpayers now have the option of taking a standard deduction, not itemizing on their tax returns. The standard deduction is now capped at $24,000, $18,000 and $12,000 for married, head of household and individual taxpayers, respectively.

If all of the above were not enough, nonprofit organizations are continually inundated with regulations — if not from federal and state governments, from the Financial Accounting Standards Board. For nonprofits that operate with budgets in the tens of millions of dollars, they can deal with constant regulatory changes — not so for the many smaller nonprofits. For many of them, the executive director wears many hats, including chief operating officer, chief financial officer, fundraising director and manager of human resources.

Most Vermont nonprofit organizations were not created to have to contend with all of the above. They had a mission they wanted to serve, but now are being distracted in time, resources and energy. Is it the time for Vermont’s nonprofit boards of trustees to think of merging?

Merging means change, and in Vermont and elsewhere, change can be a daunting experience. For many, the way in which to deal with it is to ignore it. When that is the case, it might very well place the nonprofit in danger of not being able to continue to carry out its mission.

It is well known in Vermont that many nonprofit organizations duplicate the mission of others that are located nearby or within the same geographical location. In one county, there is a town that has no less than eight nonprofits that are engaged in the mission of distributing food to local families. Similar cases can be found in the area of cultural, education and health care.

The Accounting Today piece noted that, throughout America, nonprofits are coming to grips with the fact that they have to merge. It is time for Vermont’s nonprofits to do likewise.

Don Keelan writes a bi-weekly column and lives in Arlington, Vermont.

Image courtesy of Public domain