When Do Nonprofits Stay Open and When Do They Close?

“You Got To Know When To Hold ’em, Know When To Fold ’em”:*
When Do Non-Profits Stay Open and When Do They Close?

One of the most difficult decisions to make for a chief executive officer (CEO), for a president of a board of directors, or for the board of directors itself, is whether to close a non-profit and go out of business. The factors influencing these decisions range from political to financial issues and whether the reason the organization was established continues to be relevant. It is essential that the professional and volunteer leadership of the agency be as clear about the reasons for closing as they were when they first decided to serve the community. [I recently assisted one of my clients in making this very difficult decision.]

The title of this article comes from a song performed by Kenny Rogers and the refrain is:

“You got to know when to hold ’em; know when to fold ’em, Know when to walk away; know when to run. You never count your money when you’re sittin’ at the table; There’ll be time enough for countin’ when the dealin’s done.”

A non-profit organization is commonly founded to meet the perceived needs in the community. Its ability to provide the appropriate services is usually a confirmation that the organization is responding correctly. The formation of the board, the engagement of volunteer leadership, the hiring of professional trained competent staff, and the financial sustainability are usually the key challenges to developing and maintaining a successful non-profit. When all this is accomplished what are the reasons that organizations have to confront the decisions whether to continue functioning (hold’em) or to acknowledge their accomplishment and cease operating (fold’em)?

These are not easy decisions. This is especially true when the leadership has invested many years in building an institution they believe and know meets the needs of the community. What are some of the reasons for non-profits deciding to maintain delivering service or deciding to close their doors?

When organizations reach the decision that its services are no longer necessary then it should recognize the contribution they have made to the community and plan the next steps that have to be taken. One of the most famous examples is the March of Dimes that was raising money to find a cure for Polio. Once they discovered the Polio vaccine the March of Dimes had to confront whether it should close up and go out of business. The leadership decided they had such a successful educational and fundraising apparatus that it would be a shame to shut the organization down. They adopted “birth defects” as the new cause and changed the focus of their educational and marketing programs. You can see what they are doing by looking at their website.

Not all agencies have been successful at simultaneously continuing to raise funds and changing the focus of their activities. Non-profits that have a vision and talented leadership can sustains themselves by switching direction mid-stream. This is particularly true of organizations that have been able to recreate a very successful mechanism for achieving one goal. In this case, the major focus was raising funds to solve a problem. Since the original problem was solved (Polio) the agency switched direction and adopted a new cause (birth defects) that was causing distress to families bearing children.

It is a challenge to find a new cause when the old has been fulfilled. This is rare in the fields of social and health services. The more common situation is when a population served has relocated and the institutions have either closed or re-established themselves in the new area. We have seen this in many communities in terms of synagogues, community centers, day schools and other communal organizations. The organization’s continuity is determined by the community’s interest in maintaining the services in a new geographical area.

Unfortunately, non-profits sometimes find themselves “folding” and closing their doors because they have been unable to attain financial sustainability. This often happens when the organization’s efforts are concentrated on creating and delivering services more than they are focused on the proverbial bottom line. I am not implying it is an “either/or” choice, rather it means there are someone wonderful non-profits that are providing essential services that have not developed a solid infrastructure based on a strategic approach to board development and financial sustainability.

A non-profit established by a committed group of volunteer leaders and skilled professionals has to create an involved board of directors. They must work to maintain a sound fiscal policy. This approach has to be built from the very founding of the organization and continue through each year the agency provides services to the community.

Returning to the lyrics of the song, “You never count your money when you’re sittin’ at the table; There’ll be time enough for countin’ when the dealin’s done.” The board should never rest easy when there is plenty of funding available (on the table) for funding services. It is imperative that the strategic planning process include a longer view so the agency is not in a situation where it cannot sustain itself.

When there are no longer any funds available and the leadership has exhausted all avenues to successfully raise money then the organizations has to “Know when to fold’em”. It is not an easy time and this is especially the case when the agency is providing needed and valued services. Unfortunately, it does happen when the services cannot be sustained. The professional and volunteer leadership has to grapple with the difficult reality and find a way to either join in partnership/merge with a sister organization or close its doors.

Please do not misunderstand. I am not suggesting the responsibility for the administration of a non profit or the role of the board of directors in determining policy is like a game of poker. I am positing that it can be a game of poker if determining and implementing the agency’s policies are not accomplished in a way that demonstrates strategic and fiscal planning to achieve financial sustainability.

* “The Gambler” is the title of a song written by Don Schlitz and recorded by Kenny Rogers. It was released in November 1978 as the title track from his album.

Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Leadership and Philanthropy Program and has a consulting firm focused on strengthening non-profit organizations and their leadership for tomorrow. Stephen is a regular contributor to eJewish Philanthropy.