Insights & Innovations

NonProfit Mergers: Higher Education

Triggers for Merger

Triggers for merger in higher education have increased. Reduction in government funding, reduced student numbers, and a changing market for different styles of courses have raised question marks over increasing numbers of institutions in terms of their viability.

MA

Universities have generally tried to be all things to all people in offering a wide, balanced range of subjects at a highly specialized level. There is also a strong pecking order among institutions based upon research performance, attractiveness to students, and the ability to earn from industry. Employees are likely to have strongly held views on the institution’s particular balance in these areas, and, as significant stakeholders, will have a strong influence upon the success of merger talks.

 

Ratio Analysis for a Not-for-Profit’s Financial Health

Not-for-profit organizations and social enterprises are realizing the value of financial efficiency measurement as an approach for evaluating operations, programs, services and financial stability. One effective measurement tactic is financial ratio analysis. Extracting data from your financial statements, to calculate ratios specific to your not-for-profit, and then bench-marking those ratios on past performance, management objectives or comparable organizations.

Ratios

Financial ratio analysis assists to assess your not-for-profits overall financial condition and flag financial patterns, both those that might be harmful or successful.

Upon identifying your goals for financial ratio analysis, next step is to quantify your financial information. The following are metrics and ratios not-for-profit organization’s should use and the primary indicators of financial health  from the lens of funders across sectors.

Viability ratio. Compares expendable net assets (including unrestricted and temporarily restricted net assets) to long-term debt: a not-for-profit’s relative liquidity or its ability to cover its debt. This is a basic indicator of financial strength and measures the availability of cash and other liquid assets to meet the non-for-profits financial obligations.

Current ratio. Indicates your organization’s capability to meet short-term financial obligations comparing your current assets to your current liabilities. Ideally, a not-for-profit should have a current ratio of at least 1.0, and preferably greater. A current ratio under 2.0 could indicate an inability to pay current financial obligations with a measure of safety.

Quick Ratio. Banks utilize the quick ratio comparison to gauge financial stability. It compares quick assets (current assets less inventory and prepaid expenses) to current liabilities. An organization’s quick ratio should not be less than 1.0.

Operating reserve. Addresses the question of whether resources are sufficient and flexible to support your mission so to avoid having to borrow externally. It compares expendable net assets to total expenses. It describes your organization’s ability to fund programs and other expenses from expendable net assets, should no additional operating revenue be available. Not-for-profit organizations should aim to have an operating reserve ratio of no less than 25 percent, or enough to cover at least three months of their annual expenses.

Change in net assets. Measures financial performance by addressing: “Did your not-for-profit live within its means during the year?” While an organization’s success isn’t completely assessed by whether it had a positive or negative change in net assets, consecutive deficits are cause for concern.

Operating margin. An important forecasting ratio because it illustrates organizational ability to produce a potential surplus, which could be available if needed in future years. This ratio is determined by subtracting expenditures from revenues and dividing that sum by your revenues.

Program efficiency. Compares total program expenses to total expenses. This information helps to demonstrate to potential funders how efficient your organization is in fulfilling its mission.

Operating reliance. Illustrates that your not-for-profit is able to pay for total expenses solely from program revenues, divide program revenues by total expenses.

Fundraising efficiency. Always be aware of what you’re generating from fundraising activities! This ratio identifies the amount of contributions that result from fundraising expenses by dividing the former by the latter.

Community Hubs will be a vital solution in social sector consolidation

16864213_1825165877737982_4280211732497051021_nConsortium’s for public well-being: governments, donors, community partners, high-impact nonprofits, corporations, and more, are coming together to form Community Hubs integrating services to improve the well-being of citizens of Toronto, innovating efficiency in social service delivery. Not only do they act as a one-stop shop where people can access vital programs and services, merging organizational resources, optimizing back-office processes, and utilizing multi-purposed real-estate while integrating services all under one roof, they are also places where residents come to build community.

Toronto has identified 13 priority neighbourhoods that are home to some of our most at risk residents—many of whom are isolated from crucial social services, supports and infrastructure. Community Hubs seek to fill these gaps. While neighbourhoods throughout our communities differ significantly, that’s the common bond between them. Whether a neighbourhood is made up of a large concentration of newcomers, residents living on a modest income, single parents, physically or mentally disabled citizens, or young people at risk who aren’t graduating, Community Hubs provide a place that supports the diverse and growing needs of a community.

The Sector advises regional and municipal governments and partnering nonprofit organizations around forming consortium’s to conduct feasibility studies, broker partnerships, and build coalitions to drive the implementation of Community Hubs – vital solutions toward integrating the delivery of social services and resource optimization across the sector…..

Do Your Fundraisers Have The Skills to Approach Social Investors?

We’re watching philanthropists, such as Jeff Skoll, Sean Parker and T. Denny Sanford, in the United States, J.W. McConnell Foundation in Canada or Big Society Capital in the United Kingdom, to name a few, of the thousands of social investors that are now holding fundraising professionals to new, rigorous standards for creativity, cultivation and stewardship. More philanthropists, particularly those with very high net worth, 
increasingly approach causes and giving like true venture capitalists.

Is your organization, at minimum, supporting programs, fundraising, and finance executives to harness the multiple disciplines in the emerging field of social finance as these capabilities are more and more, now in demand?

The emerging and market-making class of social investors are less 
inclined to make multiple gifts to several causes over time, or establish legacy vehicles to fund causes into perpetuity. Their motivations are deeply personal and they are increasingly ready and willing to leverage the bulk of their wealth to social innovation to 
generate transformative results that they can experience in their lifetimes. The onus is on fundraisers to think like these entrepreneurs, poses the needed technical business skills, language and perform to compete for their organizations resources. The Sector Inc., provides in-house executive training programs focused at the intersection of fundraising & social finance.

Canadian Nonprofit Organizations Are Joining The Sector To Optimize:

Advocacy. Ultimately POLICY is the largest lever that can positively affect issues affecting society that the nonprofit sector is working to change.

Social Impact. It’s all about advancing your mission. With the correct skills and tools, you can measure your organizations effectiveness and communicate the value your team brings to society.16804370_1825118264409410_917632900273818408_o

Build Capacity. Build your organizations capacity to operate more effectively; stay informed  of and participate in educational programs and conferences on essential topics such as fundraising, marketing, advocacy, governance, collaboration, managing your staff and volunteers, building your board, technology and leadership skills.

Acquire Resources. Learn about funding opportunities, marketing, and communication skills; fundraising software and databases, how to diversify your organizations income and make connections that raise your organizations profile, as well as funds to support your mission.

Grow! Shift! Listen and Lead! Acquire new skills, hear about trends that matter as you lead your organization into the future, and as you strengthen your own leadership skills.

Optimize Money. Apply best practices in LEAN operations to your organization, optimize cash-flow and balance your budget.

Optimize Time. Get fast and reliable answers to your management and governance questions.

Foster Collaboration. Create strategic partnerships that can serve your stakeholders more effectively.

Demonstrate integrity. Promote the principles of ethical practice, accountability, and transparency that advance the sector.

Why NP Housing Associations Merge – Case Studies from The United Kingdom

acommunityhubfornewmarket-58-1024Not-for-profit housing associations concerns are generally for multiple stakeholders with conflicting agendas, in many instances, the key funders – such as a government. The agenda for the firm is not couched in terms of profitability but more in terms of ‘social good’. Housing associations often merge to improve services and, through economies of scale, create efficiencies thereby better fulfilling their role as providers of low cost social housing.

IN the UK for instance, in response to government housing policy changes in 2016 a wave of housing associations mergers has transpired including Affinity Sutton and Circle (128,000 homes), L&Q and East Thames (140,000 homes) and Family Mosaic and Peabody (55,000 homes).

These are valuable examples for their Canadian counter-parts. The social-economic system of UK and Northern Europe has values that are more closely linked to business as a mechanism for improving community and while some of these firms are revenue-dependent and offer share-capital, the dominance of the shareholder does not trump the overall health of the sector to remain focused on delivering it’s social contract…..

The Wave of Nonprofit Mergers is Here

US Non Profit Sector CurveAs we continue into the wave of sector consolidation in Canada we are part of a greater global trend! As we have reached the end of rapid sector growth in it’s current structure, it is better to view the international phenomenon. Planning the next phase of growth should include potential partnerships with organizations abroad. Organizations in most developed countries are experiencing similar market dynamics and should look at the international resource-bases available in partnering with similar organizations. U.S. Vital rates (firms entry, exit and corresponding sector growth rates) 1990-2008 paint a compelling picture….(Source: Harrison and Laincz (2008))

A Change Curve for the Nonprofit Sector?

0A8A0BCD-AB18-98EB-0C594E4A4C547731The “Change Curve” is a fundamental model to the practice of Change Management. The one below (Parker & Lewis’s Transition Curve), made of seven steps that management experience through “transition.” To apply the concept of a change curve specifically to the challenges faced by leaders in the nonprofit sector, what would the nuances to these seven steps be???

1. Resource Scarcity? Lack of traditional sources of power? Accountability?
2. Denial of speed of changing technologies, donor markets?
3. Internal politics, blaming, fear, lack of transparency?
4. …………
5. …………
6 ………….
7. A demand-pull service offering, cross-sector funding model, REAL impact?

(Chart Source: Warwick Business School)

Top-Down Shakeout of the NonProfit Sector….!?!?!

strategy3Have you aligned your organizational growth strategy to the programs that will shape the structure of the Ontario not-for-profit sector in the next five years? Have you built your strategy not only to align with increasingly synchronizing levels of government and their implementing intermediaries, like Ontario Trillium Foundation? Have you aligned your other donor portfolios to leverage these capacities, like other forward thinking, high-impact organizations already have? It may be time to build monitoring and evaluation capacity, consider strategic partnerships or even perhaps a merger? In business there is a term: “market shakeout”……Chart Source: Ontario Trillium Foundation

Ontario’s Social Enterprise Strategy 2016 – 2021

Ontario’s Social Enterprise Strategy 2016 – 2021 will reshape the funding landscape for social enterprise in the province, across all donor-segments in Ontario over the next 5 years. Ontario is home to approximately 10,000 social enterprises (80% OF WHICH ARE NON FOR PROFIT ORGANIZATIONS), that are building solutions in the fields of inclusive employment, education, health, and environmental sustainability.