Should You Join Forces with Another Nonprofit?

SEE ALSO >>>Nonprofit Services

Forming an alliance with a like-minded organization can be a smart strategic move. But think things through thoroughly before making the leap.

Examine your Motives

First off, why are you considering hooking up with another organization? Do you want to save money by sharing operating expenses? Would the union enable you to take on a project or expand your reach in a way that you couldn’t do alone?

Your motives for joining forces should make good sense. Then, once you and your potential partner (or partners) have a specific alliance in mind, your accountant can perform a cost analysis to make sure that financial expectations are on track.

Get Versed in Joint Ventures

For nonprofits, “joint venture” involves a contractual arrangement with another nonprofit, a for-profit entity or a governmental agency. The two entities become engaged in a solitary enterprise without incorporating or forming a legal partnership. A joint venture is otherwise similar to a business partnership, except that the relationship typically has a single focus and is often temporary.

For example, a few years ago the American Institute of Certified Public Accountants (AICPA) teamed up with the London-based Chartered Institute of Management Accountants (CIMA). The two professional associations formed a joint venture to develop and promote a new global management accounting designation. The AICPA owns 60% of the joint venture — the Association of International Certified Professional Accountants — and CIMA owns 40%. The board of directors is split evenly between the organizations, with CIMA and AICPA leaders rotating in the role of chair.

Study up on Strategic Alliances

“Strategic alliance” is a blanket term typically used among nonprofits to represent a wide range of affiliations, including joint ventures. Like a joint venture, a strategic alliance can involve a relationship with another nonprofit, a for-profit or a governmental entity.

The motivations for forming a strategic alliance can vary greatly. For example, Metropolitan Nashville Public Schools formed a strategic alliance with the for-profit Warner Music Nashville to create a student-run record label. Concurrent Technologies Corporation and Renewable Manufacturing Gateway, both nonprofits, drafted a “Memorandum of Understanding” combining their strengths to recruit new companies to locate manufacturing operations in western Pennsylvania.

In another instance, the Council for Christian Colleges & Universities forged a strategic alliance with Christianity Today International to offer a Christian college search website. And a Midwest homeless shelter aligned itself with a community center that offered free classes. By referring its residents to the center, the shelter expanded opportunities for the homeless. And the community center now reaches more needy people.

Consider all Factors

No matter what type of alliance you make, you should look into the other organization’s finances. First, does the entity pursuing you — or the entity you’re pursuing — have ample means? An alliance between two nonprofits is like any business partnership. Make sure the organization has a good net asset balance and can live up to its financial commitments. There’s no synergy to be had if one of the partners is going to bear the full burden of the arrangement.

Also consider if the other organization’s values align with yours. Does the entity have a similar sense of business ethics — and strong internal controls? Two working as one requires a great degree of openness and trust between the two parties. You’ll be sharing credit and responsibility for initiatives. Because the reputations of both are at stake, the two entities need to be jointly accountable.

Patience is a Virtue

Careful planning is essential before teaming up with another organization. So, too, is careful oversight of all activities once the two entities have begun the cooperative effort. Patience and hard work will be necessary — it usually takes a significant amount of time before the new venture can reach its highest level of effectiveness.

Need Additional Information?

If you need more information, please contact us so we can connect you with one of our CPA advisors who will be committed to your business and personal success. BLS is here to help!