February 29, 2008
Did You Know?
Factors that contribute to the closure of nonprofit organizations
A recent article in Nonprofit Quarterly titled “The Ultimate Question” examines the issue of when and why a nonprofit organization should close its doors. This article, based on data and case studies from a 14-year longitudinal study of 229 nonprofits in the Minneapolis and St. Paul metropolitan area, explains that the closure of an organization is the ‘result of a complicated web of reasons.’
Examples of Catalyzing Events
- Financial crisis
- Mission completion
- Program success/failure
- Expansion of operations
- Low board or staff capacity
- Community demographic shifts
- Lack of public need for services
Of the 229 organizations that began the study, 74 organizations through merger, relocation, conversion or closure, no longer existed at the conclusion of the study. According to the report, closures of nonprofit organizations can be explained by precursors or catalyzing events that can occur in a multitude of scenarios.
No single event determines the survival or death of a nonprofit organization. One must take into account the external environment, organizational culture and the leadership of management. A combination of events and the subsequent reactions to these events are what bring nonprofits to their current situations and predict future plans, which sometimes is closure.
The complex series of events that lead to organizational closure rarely ever play out in the same manner. Although difficult to explain definitively, one possible model of the closure process is given below:
Some nonprofit organizations close because they cannot recover from an unforeseen series of events, while others close because their mission is complete or new organizations approach a community issue in more relevant and appropriate way. Cultural groups look to state arts agencies for support and guidance at all points in the nonprofit life cycle – inception, growth, maturity and death. State arts agencies currently award grants to about 13,000 nonprofit arts and community groups, some of which will inevitably face the complexities of turnover or closure in the years ahead.
Source: Hager, Mark. “The Ultimate Question.” The Nonprofit Quarterly. Boston: February 9th, 2008.
For More Information:
Duckles, Beth M., Hagar, Mark A., Galazkiewicz, Joseph. “How Nonprofits Close: Using Narratives to Study Organizational Processes.” In Qualitative Organizational Research, edited by Kimberly D. Elsbach, 169-203. Charlotte: Information Age Publishing, 2005.
This chapter, and its discussion of the 14-year longitudinal study, is the supporting evidence for “The Ultimate Question.”
Fraint, Eric. “The Use and Misuse of Ratios” NASAA Annual Conference Materials
Ratio analysis is a powerful tool for assessing an organization’s financial health and can provide early warnings of potential crisis. This article provides guidance on how to apply ratios to nonprofit statements correctly. For more information on how to read and interpret financial statements for nonprofit arts organization, please refer to the NASAA Assembly 2007 Preconference workshop materials: on this page
In this Issue
Executive Director's Column
Did You Know?
Frequently Asked QuestionsSubscribe
To receive information regarding updates to our newslettter. Please fill out the form below.