nonprofit bankruptcy – The Healthy Non-Profit

Larkin Center evolves for 117 years, and then it ceases to exist

October 18, 2013 erik leadership, organizational development

Welcome to O.D. Fridays at DonorDreams blog. Every Friday for the foreseeable future we will be looking at posts from John Greco’s blog called “johnponders ~ about life at work, mostly” and applying his organizational development messages to the non-profit community.

In a post titled “Survival Is Not Mandatory,” John talks about how change is occurring all around us all of the time. Organizations need to make the decision to adapt to those changes or risk going out of business.

On Wednesday afternoon, I received the following email in my inbox from a local non-profit organization with whom I’ve worked with and supported over the last 13 years.

A Farewell Thank You to Larkin Center Supporters

The Larkin Center has been a valuable part of the Elgin area for over 117 years. Unfortunately, the Center has experienced financial challenges at a time when demand for its services has increased. We have been in discussions with several strategic partners over the last 18 months to secure the long-term future of the Center.

As of last Friday, the effort collapsed and we are working with appropriate state agencies to transfer contracts and transition our clients as a result, it saddens us to announce that the Center will no longer be able to sustain itself after Friday, October 18, 2013.

The Larkin Center clients and staff would like to thank the many individuals and organizations that have supported our mission throughout the years and have truly made a difference in the lives of our clients.

Larkin Center has adapted to all of the changes throughout the years. They were founded more than 100 years ago as an orphanage. Over the course of time, orphanages disappeared from our communities, and Larkin Center evolved into an agency offering residential services to children who had trouble surviving in a state-run foster care system.

larkin4 As the years passed, Larkin Center added more services including a school for children struggling with behavior disorders and counseling services for adults.

It is obvious to me that Larkin Center’s staff and board understood that “survival is not mandatory,” which is why they kept evolving and changing with the times. I think it is this realization that makes this closure so difficult to swallow.

Is it possible that there comes a time when adapting to change and evolving is not possible? Do organizations have a life span much like human beings?

The sadness of this moment makes it impossible for me to go down this road and contemplate the answers to these questions.

Instead, I want to celebrate. That’s right. You heard me correctly.

larkin1 There will be lots of news coverage about the “failure“. Many people will weigh-in with what they think went wrong and what could’ve and should’ve been done differently. There might even be a victory lap taken by a few Elgin city council members who openly fought with Larkin Center because they didn’t think “those kids” belonged in our community.

I won’t touch any of these topics with a ten foot pole. At least not today.

Instead, I urge all of you to take a moment to think about the heroes who fought to the very end to save Larkin Center.

When I think about the countless number of volunteer hours invested in strategic planning and exploring merger possibilities over the last 18 months, I want to honor those efforts.

When I think about the Larkin Center staff who persevered through furloughs and late paychecks because they believed in saving this agency’s mission, I want to honor those efforts.

larkin3 When I think about the donors who invested in efforts to save this organization in the final months and years of its life, I want to honor those efforts.

When I think about the tens of thousands of children and adults (if not more), whose lives were touched and changed by Larkin Center, I want to honor those efforts.

There will be plenty of time to dissect what happened and learn lessons from Larkin Center, but please join me in honoring the accomplishments and hard work of so many people.

Sigh! As always, John is right . . . “Survival is not mandatory.” But it doesn’t mean we shouldn’t celebrate 117 years of evolution and the will to survive.

You can join me in remembering Larkin Center and honoring the organization, its accomplishments and its volunteers and staff members by recalling a memory and sharing it in the comment box below.

Here’s to your health (and continued evolution)!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC
www.thehealthynonprofit.com
erik@thehealthynonprofit.com
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Follow-up: Non-profit sector contraction predictions?

January 7, 2013 erik Uncategorized

At the end of 2011, I predicted in a year-end blog post that the non-profit sector in the United States would see the continuing trend of “non-profit failures, mergers, acquisitions and strategic alliances“. Last week, I thought it would be fun to look back and determine if my prognostications where off-the-mark and by how much.

Here is some of what I found:

The Chronicle of Philanthropy reported in March 2012 that sector contraction was real. They pointed to the IRS revoking the tax status of 272,000 non-profit organizations. They also pointed to the economic slow down and its effect on wealthy people establishing fewer foundations.
The NonProfit Times also reported in March 2012 that the number of applications for tax-exempt status is down.

In reality, I found it very difficult to find a lot of data pointing to sector contraction. However, I did find lots of interesting little facts such as:

Non-profits account for more than 9% of all wages paid in the United States.
Non-profits also account for approximately 5.5% of the United States’ GDP.

Click here to see a snapshot of all sorts of other interesting little facts about your sector.

So, is the sector contracting? Is this a larger trend? Will we see more bankruptcies, mergers, etc? Was I right at the end of 2011?

I think so.

In fact, if I had to bet, I would totally double down on this 2011 year-end prediction.

Why? I simply point to the following passage that I read in “The Nonprofit Almanac 2012“:

“Another noteworthy trend is the gap between income and expenditures, which was negative for 8 of the 10 years covered, rising to −$65 billion by 2010. It appears that the growth of the sector is being financed by borrowing or drawing down of reserves, trends that are likely to weaken affected parts of the sector over the long haul.”

On a personal note, I trust my eyes and my ears. I cannot remember a time when I’ve seen so many non-profit organizations struggling to make ends meet.

Some of you may be wondering if I have any tips for non-profits who are experiencing financial crisis and facing down insolvency? Sure, go hire yourself an amazingly talented executive director. I’ve never seen any agency “turn it around” without a truly talented CEO.

What do your eyes see? Are there non-profits in your community struggling or going out of business?

Here’s to your health!

Paralyzed by equally bad decisions? Then bankruptcy it is!

November 16, 2012 erik organizational development

Welcome to O.D. Fridays at DonorDreams blog. Every Friday for the foreseeable future we will be looking more closely at a recent post from John Greco’s blog called “johnponders ~ about life at work, mostly” and applying his organizational development messages to the non-profit community.

In a recent post, John appealed to his creative muse to write about a 14th century French philosopher named Buridan by writing a story about Buridan’s ass (if you want to know, then you need to go read the post). In a nutshell, this philosopher believed “in the face of equally good alternatives, he believed a rational choice could not be made“.

This got my nonprofit wheels spinning, and I wondered if the opposite is also true. In other words, in the face of equally BAD alternatives is it impossible to make a rational choice.

Hmmmm?

I don’t know about you, but since the economic downturn began almost five years ago I’ve seen a lot of non-profits prove this point.

Two equally bad alternatives:

Apply for more government contracts in spite of slow payment and what seems to likely to be future cuts and claw-backs due to a poor tax revenue situation all in the name of keeping the agency’s doors open; OR
Cancel some government contracts because they don’t come close to covering costs, which means a loss of some (albeit small) revenue that helped cover administrative overhead resulting in downsizing and re-organization. Of course, there is usually a plan to shift resource development efforts and invest more in private sector fundraising, but the re-org and downsizing destroys public confidence in your agency and these plans likely fall short.

Ugh! Which equally bad option should we choose? Of course, board volunteers drag their feet and don’t make a decision because who wants to be known in the community for slashing services or downsizing a “do-gooder” non-profit organization?

Besides, the board members sitting around the table weren’t recruited for their fundraising skills because when they were recruited the government funding situation was good and there was no need to focus recruitment efforts on finding “lean-mean-fundraising-machines”. So, they are probably very reluctant fundraising solicitors and very resistant to this idea.

Staff members aren’t much better as they reach for their rosary and convince themselves that “hope” is a strategy.

Do you think that I am talking about your agency or some other organization in your town? Let me assure you that the agency I have in mind is none other than Jane Addams Hull House. The Chronicle of Philanthropy wrote a great story about this tragedy back in February, and I think they help me prove that the opposite of Buridan’s philosophy is also true.

The scary thing about this example is that I can name a number of other non-profits who appear to be going down this same road.

Regardless, if you wait too long to make a decision, then everything caves in and you’re out of business.

Interestingly, I came across an old New York Times article that examined the emerging trend of non-profit organizations using bankruptcy laws to shield themselves from this phenomenon. The newspaper did a nice job of explaining an agency’s two options:

“Under Chapter 11 of the federal bankruptcy code, charities can get relief from creditors, obtain emergency financing, renegotiate leases and draw up a reorganization plan to let them emerge as financially viable. Some charities, however, have resorted to Chapter 7 of the code, under which organizations liquidate. The American Musical Theater of San Jose, Calif., for instance, took that route.”

My gut feeling tells me this will become a bigger and bigger trend as more and more non-profit boards experience difficulty in making a choice between two very bad decisions (whatever those decisions may be). Hopefully, they don’t end up like Buridan’s ass in John’s blog post . . . DEAD.

Has your non-profit organization ever been faced with the choice of two bad decisions? How did you work through it and avoid indecision? Have you ever seen a non-profit organization in your community file for bankruptcy? If so, how did that turn out for them? Did they survive? How did they restore donor confidence? Please use the comment box below to share your thoughts.

Here’s to your health!