By Linda Zager and Em Hall
The nonprofit sustainability conversation is not new but is ongoing. Many nonprofits, with similar missions and goals, regularly consider options ranging from a simple collaboration to an entire merger or acquisition to ensure the ongoing health, and even existence, of their organization.
Merging two non-profit organizations can be both a lengthy and challenging process. Many factors, like existing cultures, facilities and office space, integrating staff and boards, funding and financial viability, need to be taken into consideration. When it comes to financial decisions, keeping an eye on long-term sustainability goals will help stakeholders make good decisions along the way. By hedging funding shortfalls and addressing budgetary challenges, your organization will ultimately find that pooling resources and combining efforts can help you secure additional funding.
There can be many reasons why non-profit organizations chose this path for sustainability, including leveraging respective strengths, make program offerings more effective, and perhaps most importantly broaden the scope of the newly merged organization’s impact in a community.
A big part of realizing the complete value to provide the biggest impact in the community is assessing, combining and streamlining of purchasing processes and maximizing the new organization’s cash flow and funding to achieve the larger initiatives.
Here is a proactive approach to streamline purchasing processes and to leverage supplier relationships to make your funding go further:
Assess your new needs and resources
As the merging process moves forward, the resources and operational aspects of both organizations will be consolidated. This phase provides a valuable opportunity to review and address areas where changes and efficiencies can be made.
Keeping your staff well informed is crucial throughout this phase, as they will be ensuring daily tasks are maintained even as seismic strategic shifts might be happening. Likewise, your combined Boards play an important role and will most likely be asking a lot of questions to ensure the long-term health of the newly formed organization.
When conducting a purchase analysis, it’s important to develop a list of current suppliers and to gather information related to total annual spends, per supplier. This will help you uncover recent activity and can inform your strategic planning. This information also provides an idea of where additional savings may be hiding.
Once information has been gathered and organized, the next step is to have a conversation with key stakeholders to better understand the organization’s overall resources and needs and the role that each stakeholder should play moving forward.
This conversation should touch upon:
- Incumbent supplier relationships, including those previously deemed untouchable and getting a full history and clarity of the relationship;
- Recent purchasing activities and RFPs;
- Current contracts that need to be reviewed (or contracts that that can’t be touched);
- Opportunities to re-evaluate supplier contracts before term due to new size and scale, and;
- Decisions on how to manage cost-reduction efforts across expense category.
Review your current suppliers
Both organizations have likely developed long-standing relationships with suppliers over the years that may also extend into fundraising and sponsorship efforts. However, as a new organization is formed, it’s imperative to review current suppliers to streamline and remove any redundant services. This can be an opportunity to see how supplier services and relationships can be improved upon.
While stakeholders are re-evaluating incumbent suppliers, it’s important to keep the process objective.
A few talking points should be:
- Is the supplier interested in the organization’s challenges and plans for growth?
- Does the supplier play an active role in the success of your nonprofit or are they only visible during contract renewals?
- Is the supplier a close relation (or friend) of someone on staff? If so, does this impact or influence business decisions?
- Understanding the overall value of the relationship, including the right balance of getting donations and pricing?
This should foster an open conversation for stakeholders to establish if incumbent suppliers are meeting the new organization’s business needs. This conversation can also be a catalyst in determining if it’s time to seek out other suppliers.
Consider going to bid
If your organization is ready to consider suppliers’ options, it’s important to go to bid with your purchasing and service criteria in mind. Each supplier has different strengths, so seeking the suppliers that understand your organization’s needs creates a win-win for all involved.
Even if your organization has developed a strong relationship with an incumbent supplier—and don’t plan on leaving—initiating the bid process can help create competitive tension and give your current supplier the incentive to offer more competitive pricing and services.
Monitor your results
Once you’ve gone to bid and implemented favorable contracts, don’t assume the job is done. The next step is to ensure that your organizations’ savings efforts are viable by monitoring the results.
A monthly or quarterly invoice review can help keep costs from slowly creeping back up.
When reviewing invoices, watch for:
- Pricing errors;
- High price/high volume purchases;
- Change in product mix, and;
- Off contract purchases.
If there are any discrepancies, don’t hesitate to discuss them with your supplier. Also, be aware and very much in front of any auto-renewal clauses (especially if the renewal rate is higher).
This also an opportune time to educate staff about current suppliers, their contract terms, and purchasing best practices to avoid off-contract purchases or other activities that could result in fees.
Consider third party help
As your new organization is being formed, it may be worthwhile to bring in an outside party to review the current expenses and related purchasing practices of both organizations to help identify opportunities. That outside expertise not only ensures your employees and board members are focused on their key tasks, but also provides an unbiased and fully transparent perspective on methodologies that may be in the best interest of all involved.
As with any merger, various stakeholders are going to have their own way of doing things and might not be open to change. As a result, there could be resistance and emotional ties towards certain processes because it’s “the way things have always been done.” A third party should understand the organization’s goals and business operations to help strike a balance between allocating funds to further the organization’s mission and the investment needed in the necessary business functions. The overall goal is to set up legacy processes that all staff can follow going forward.
The process of merging two non-profit organizations into a new entity can introduce challenges, but also opportunities. Executing a review of expenses, purchasing processes, and best in class procurement activity, can allow your organization to lay a strong foundation to maximize your funding dollars and continue providing resources to your community for years to come.
Em Hall is the Director of Marketing and Communications for the Back Office Cooperative, an organization that provides the non-profit community with expense management and cost reduction efforts. The Back Office Cooperative is a strategic partner of ERA.