When To Consider Entering Into A Strategic Alliance
Like most traditional for-profit entities, nonprofit leaders have their share of financial obligations to balance in the interest of keeping their organizations afloat; but unlike their for-profit counterparts, most nonprofits have to make due with significantly tighter budgets. Moreover, managing a nonprofit’s funding and revenue streams becomes particularly taxing as those in the not-for-profit sector are required to juggle differing compliance requirements for nearly every dollar flowing into the organization. It can be frustrating and, in some cases, unproductive.
A strategic alliance may just be the solution your nonprofit needs to generate additional revenue, minimize burdens relating to compliance responsibilities, and have an overall greater impact on the community or for the causes you seek to serve.
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We’ve noticed that many nonprofit leaders are reluctant to collaborate, share services or enter into agreements with like-minded organizations because of the perceived threat to their own organization’s mission, donors, volunteers, etc. Primarily, nonprofit leaders shy away from forming a strategic alliance because they fear:
- The strategic alliance would ultimately result in the elimination of jobs or staff positions.
- The strategic alliance would restrict their ability to manage the organization as they see fit.
While these concerns are certainly understandable, we’ve witnessed many strategic alliances between like-minded nonprofits that have generated a variety of positive outcomes.
For some organizations, it may make sense to essentially merge your organizations, which would bring some of your primary concerns (job losses and management restrictions) to fruition. But for others that may just be looking for a boost in a particular area, the formation of a strategic alliance could be just what you’re looking for. A strategic alliance can help you:
- Eliminate Duplication of Efforts – Strategic alliances formed between nonprofits with similar mission statements could result in greater financial assistance, enhanced resources and stronger support of the organization’s mission. An example of how this strategic alliance might work is to consider how a homeless shelter might align with a community learning center to offer free classes. In this scenario, shared resources could result in greater community impact while minimizing operational costs and encouraging the pooling of financial resources, which could result in enhanced financial security.
- Share Services – Think of almost any existing cause and you’ll likely find a handful of organizations, all with their own infrastructure and operational costs (office space, information technology, legal fees, insurance, etc.). Moreover, because there are similar organizations offering similar services, you are essentially competing for the same donors and cutting your impact in half or more. Sharing services can greatly reduce the operational costs associated with running a nonprofit – especially if two or more nonprofits are essentially providing the same services.
- Grow Your Pool of Donors/Volunteers – Are there organizations out there that are currently working with same pool of donors or volunteers you’ve been targeting? A strategic relationship between your organization and theirs could put you in a better position to reach this particular audience for volunteerism opportunities, funding assistance or to increase the collection donations such as clothing, food or household products. For example, your research might show that the “professional women” demographic in your area actively engages with nonprofits whose mission it is to assist low-income women who are trying to return to the workforce. In this instance, if you are looking to grow your nonprofit’s reserves of used work clothing, funding for new skills training or technology items such as laptops or cell phones, you might consider a strategic alliance with a nonprofit organization that is already effectively engaging this demographic.
Types of Strategic Alliances
As noted above, your strategic alliance can take many forms. Yours will depend on the challenges your organization is currently facing and whether a strategic alliance could help you fulfill your organizational goals. Types of strategic alliance that could benefit your organization could include a:
- Joint Venture – This type of strategic alliance occurs when nonprofits come together to manage a revenue-generating activity that benefits all parties (for example, a social entrepreneurial venture or capital campaign).
- Joining of Programs – This type of alliance results when nonprofits to come together to manage one main program that supports the mission of each entity.
- Administrative/Back Office Consolidation – In this type of alliance, nonprofits unite to share (or outsource) administrative functions in an effort to reduce an organization’s overall overhead costs.
- Fiscal Sponsorship – This particular alliance enables a nonprofit to exist as a project or program under another nonprofit’s umbrella, as opposed to existing as an independent entity.
- Merger/Acquisition – Full integration of all program and administrative function between multiple entities with a single surviving entity.
Email Rea & Associates’ team of nonprofit specialists to discuss your organization’s existing challenges and whether a strategic alliance makes sense for your nonprofit.
By Ben Antonelli, CPA (Dublin office)
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